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Soaring energy prices are weighing on European portfolios – and the bloc’s climate plans.
Concerns over a popular backlash were evident on Tuesday when members of the European Parliament debated the European Commission’s Fit for 55 climate legislation proposals.
“Citizens are starting to ask questions,” said Anna Zalewska of Poland’s ruling Law and Justice party. “First of all, they wonder about the widespread price increases, because they are the ones who will foot the final bill. It is they who will unfortunately pay for the ambitions of the EU.
Polish Prime Minister Mateusz Morawiecki points to Brussels. “Electricity prices in Poland are linked to EU climate policies,” he said last week.
The Commission insists that these prices are not the fault of the EU Emissions Trading System, which has seen the cost of a permit to emit one tonne of CO2 more than double over the course of of last year to reach around € 60. Rather, the increase in electricity prices is largely due to high gas prices and structural problems in the European electricity market, but the Commission is still wary of responsibility for its net zero Green Deal project.
Green Deal Commission chief Frans Timmermans told MPs on Tuesday that “only a fifth” of the rise in electricity costs could be attributed to the rise in the price of ETS, the rest being caused by low gas supply.
He argued that these rising costs actually strengthen the case for a rapid switch to cleaner energy sources.
Some MEPs have sided with Timmermans. “We need to act drastically, but there is a problem: Slovakia and Europe are facing rising electricity prices, putting the most vulnerable and the poor 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 Parliament’s environment committee, said his liberal group Renew Europe opposed the Commission’s proposal to extend emissions trading to road transport and to buildings.
“We believe that the political cost is extremely high and that the climate impact is very low,” he said.
In response to a question from a journalist about the risk for the Green Deal if the costs were blamed on the middle class, Green MEP Philippe Lamberts said: “How can you imagine we not thinking about it? Are we that stupid? ”
A continental problem
Governments across the EU are feeling the pressure.
In Italy, electricity bills increased by 20% in the last quarter and are expected to increase by 40% from October, according to the Minister of Ecological Transition Roberto Cingolani. He told POLITICO that he agreed with Timmermans that the lesson to be learned from the current price hikes was that “we should be very quick in increasing renewable energy power plants”.
Despite this, Cingolani was aware of the political risk. “You are directly measuring the impact of the concept of decarbonization,” he said, warning that people “shouldn’t perceive that the transition means you pay more for electricity and that’s it”. As people are forced to make heartbreaking changes in their lives, such a “historic transformation” has its costs and will be difficult.
In Spain, the government is facing a political crisis caused by record electricity prices, which have tripled to € 172.78 per kilowatt hour in the last half of the year. On Tuesday, he approved measures to lower bills with temporary tax cuts, limiting the amount that prices can rise and clawing back around 2.5 billion euros in utility profits to redistribute to consumers. The goal is to keep invoices where they were in 2018.
“We will reduce the profits of energy companies and redirect the profits to consumers,” Prime Minister Pedro Sánchez said.
Indignant nuclear companies have threatened to shut down their reactors – which provide about a fifth of the country’s electricity – soon if the government implements its plan.
The Greek government said on Tuesday it would spend 150 million euros to reduce consumer bills until 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 go up.”
The problem, Cingolani said, is that Europe is halfway in its transition to 100% clean energy, with “a mix of old and new energy sources in which 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 energies like solar. , wind power, hydroelectricity and nuclear power. But countries have shut down both coal and nuclear power plants – and when the wind and sun is less, more and more natural gas bought on world markets fills the void.
Currently “Wind generation is low and in some markets there are a lot of power plants offline,” said Glenn Rickson, head of European energy analysis at S&P Global Platts. “With the general shutdown of coal-fired power plants in recent years (…) there are fewer possibilities to move away from gas production when gas prices get high, which in turn affects the price. some gas.”
The EU is now squeezed as global gas prices soar.
It is compounded by the structure of EU wholesale electricity markets, where the most expensive source of energy used to meet total demand sets the price for the entire market. This means that high gas prices drive up overall costs even though fuel is only responsible for a small portion of overall electricity production.
As the Fit for 55 proposals arrive in parliament this winter – and gas prices are set to rise even more as Europeans turn on the heat this winter – the Commission will likely face complaints in the months to come.
“The only thing we cannot afford is for the social side to oppose the climate side. I see this threat very clearly now that we are discussing rising prices in the energy sector,” Timmermans said.
The green transition, he said, “is going to be pretty darn tough, and no one should be under the illusion that it is going to be easy.” But he urged lawmakers to avoid the “trap” of talking “all the time about the cost of transition and avoiding talking about the cost of not transitioning.”
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