Rising electricity prices raise concerns over EU climate plans – POLITICO

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Rising energy prices weigh on Europe’s wallets – and the bloc’s climate plans.

Concerns about popular backlash were evident on Tuesday as MEPs debated the European Commission’s Fit for 55 legislative proposals.

“Citizens are starting to ask 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 is they who will pay the final bill. It is they who will unfortunately pay for the ambitions of the EU.”

Polish Prime Minister Mateusz Morawiecki points the finger at Brussels. “Polish electricity prices are linked to the EU’s climate policy,” he said said last week.

The Commission is insisting that those prices are not the fault of the EU emissions trading system, which more than doubles the cost of a license to emit a tonne of CO2 in the past year to around €60. The increase in electricity prices is instead largely driven by high gas prices and structural problems in the European electricity market, but the Commission is still wary of its net-zero Green Deal project being blamed.

Frans Timmermans, head of the Commission’s Green Deal, told MEPs on Tuesday that only “one fifth” of higher electricity costs can be attributed to the rising ETS price, with the rest being caused by low gas supplies.

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

Some MEPs sided with Timmermans. “We have to act radically, but there is a problem: Slovakia and Europe are dealing with rising electricity prices, and this is hurting the most vulnerable and poor. Why? Because of our reliance on fossil gas,” says Slovakian legislator Martin Hojsík of Renew Europe.

The political danger to the Commission’s Fit for 55 program is clear.

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

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

Responding to a reporter’s question about the risk to the Green Deal if the costs were put on the middle class, Green MEP Philippe Lamberts said: “How can you imagine that we don’t think about this? Are we that stupid?”

A continental problem

Governments across the EU are feeling the pressure.

In Italy, electricity bills rose 20 percent in the last quarter and are expected to rise 40 percent from October. according to Minister for the ecological transition Roberto Cingolani. He told POLITICO that he agreed with Timmermans that the lesson of the current price hikes was that “we should be super fast at increasing the renewable power plants.”

Despite this, Cingolani lived the political risk. “You’re directly measuring the impact of the decarbonization concept,” he said, warning that people “shouldn’t realize that the transition means you’re paying more for electricity and that’s all.” With people being forced to make profound changes in their lives, such a “historical transformation” will come at a cost and will be difficult.

In Spain, the government is facing a political crisis caused by record-breaking power prices – which have tripled in the past six months to €172.78 per kilowatt hour. Tuesday approved measures to lower bills with temporary tax cuts, limiting the amount prices can rise, and recover approximately €2.5 billion in profits from utility companies to redistribute to consumers. The goal is to keep accounts of 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 — if the government pushes through its plan.

The Greek government said on Tuesday it would spend €150 million to lower 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 rise.”

The problem, Cingolani said, is that Europe is halfway through its transition to 100 percent clean energy, with “a mix of old and new energy sources in which carbon dioxide will raise its price.”

Market signals

The idea behind the ETS was to price carbon, impose higher costs on polluting energy sources such as oil, coal and gas, and encourage low-carbon energy such as solar, wind, hydropower and nuclear. But countries have shut down both coal-fired and nuclear power plants — and when less wind and solar are available, it’s more and more natural gas that is bought in global markets to fill the gap.

Currently “There is little wind production and in some markets a large number of factories are offline,” said Glenn Rickson, head of European energy analysis at S&P Global Platts. “With the general shutdown of coal plants in recent years… there is less room to switch gas production when gas prices get high, which in turn feeds back into gas prices.”

The EU is now under pressure as global gas prices rise.

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

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

“The only thing we can’t afford is that the social side is opposed to the climate side. I see this threat very clearly now that we have a discussion about the price increase in the energy sector,” said Timmermans.

The green transition, he said, “will be damn hard, and no one should have the illusion that this will be easy.” But he urged lawmakers to avoid the “trap” of “talking about the cost of transition all the time and avoiding talking about the cost of non-transition”.

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