Soaring energy prices drive anxiety over European Union’s climate plans

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Rising energy prices are putting a strain on European wallets – and the bloc’s climate plans.

Concerns about a public backlash were evident on Tuesday as members of the European Parliament debated the European Commission’s proposals for 55 climate legislation proposals.

“Citizens are starting to ask questions,” said Anna Zalewska from the ruling Polish law and justice party. “First of all, they ask for price increases across the board, because it is they who will pay the final bill. Unfortunately, you will pay for the ambitions of the EU. “

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

The Commission insists that these prices are not due to the EU’s emissions trading system, where the cost of a permit to emit one tonne of CO2 has more than doubled over the last year around 60 €. The electricity price hike is instead mainly being driven by high gas prices and structural problems in the European electricity market – but the Commission is still suspicious that its net-zero green deal project is being blamed.

Frans Timmermans, head of the Commission’s Green Deal, told MPs on Tuesday that only “a fifth” of the higher electricity costs were due to the rising ETS price, the rest to the low gas supply.

He argued that these rising costs actually strengthen the case for a quick move to cleaner energy sources.

Some MPs sided with Timmermans. “We have to act radically, but there is a problem: Slovakia and Europe are faced with rising electricity prices, which puts the weakest and poorest at a disadvantage. Why? Because of our reliance on fossil gas, ”said Slovak legislator Martin Hojsík from Renew Europe.

The political threat to the Commission’s Fit for 55 program is obvious.

Pascal Canfin, the French MEP and chairman of the 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 is very small,” he said.

When asked by a reporter about the risk to the Green Deal if the costs were placed on the middle class, Green MEP Philippe Lamberts said, “How can you imagine we don’t think about it? 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. corresponding Minister for Ecological Transition Roberto Cingolani. He told POLITICO that he agreed with Timmermans that the lesson from the recent price hikes was that “we should be super fast in expanding renewable energy plants”.

Even so, Cingolani was aware of the political risk. “You are directly measuring the impact of decarbonization,” he said, warning that people “shouldn’t realize that the transition means you pay more for electricity and that’s all.” Since people are forced to change their lives, such a “historical transformation” is expensive and difficult.

In Spain, the government is in a political crisis, caused by record-breaking electricity prices, which have tripled to 172.78 euros per kilowatt hour in the last six months. On Tuesday, it approved measures to cut bills with temporary tax cuts, limit price hikes, and reclaim roughly € 2.5 billion in utility company profits for redistribution to consumers. The aim is to keep the bills as they were in 2018.

“We will reduce the profits of energy companies and redirect the benefits to consumers,” said Prime Minister Pedro Sánchez called.

Outraged nuclear companies threatened to shut down their reactors – which provide about a fifth of the country’s electricity – prematurely if the government carries out its plan.

The Greek government announced on Tuesday that it would spend 150 million euros on lowering consumer bills by the end of the year.

“There is an international energy crisis”, Minister of Energy Kostas Skrekas told Reporter. “Our government has decided to support those whose bills are growing.”

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

Market signals

The idea behind the ETS was to price carbon in order to impose higher costs on polluting energy sources like oil, coal and gas and to promote low carbon energy like sun, wind, water and nuclear power. But countries have closed both coal and nuclear power plants – and when less wind and sun are available, natural gas increasingly fills the void on world markets.

For now “Wind generation is low and many assets are offline in some markets,” said Glenn Rickson, director of European power analysis at S&P Global Platts. “With the general closure of coal-fired power plants in recent years … there are fewer opportunities to get away from gas generation when gas prices are high, which in turn affects the gas price.”

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

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

With the Fit for 55 proposals going through Parliament this winter – and gas prices are likely to rise when Europeans turn on the heating this winter – the Commission is likely to face complaints for months to come.

“The only thing we cannot afford is that the social side is opposed to the climate side. I see this threat very clearly now that we are discussing the price increase in the energy sector,” said Timmermans.

The green transition, he said, will “be bloody tough and no one should be under the illusion that it will be easy”. But he urged lawmakers to avoid the “trap” of “talking about the costs of transition all the time and avoiding talking about the costs of non-transition”.

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