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EU plans for future resilience

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Europe’s energy system has proved up to the task of dealing with the coronavirus outbreak, but the sector’s future is at the mercy of volatile and unpredictable factors. Kadri Simson, EU Energy Commissioner, tells E&T that fundamental changes are needed to protect the roll out of clean power and prevent a greenhouse gas rebound.

Virus lockdown measures and shuttered industries are predicted to slash global emission levels by 8 per cent this year, according to the International Energy Agency, while a reduced demand for electricity has boosted the standing of renewable energy sources.

That was best demonstrated by the UK’s two-week uninterrupted run of keeping coal power plants offline, as gas, nuclear, solar and wind were able to keep the lights on by themselves.

Yet coronavirus is not guaranteed to boost clean energy’s fortunes and usher fossil fuels out of the door. According to the EU’s Energy Commissioner, Kadri Simson, the pandemic risks hurting the sector in the long run, if the right decisions are not made now.

“The crisis has shown the vulnerability of our supply chains, reduced investment levels, shrunk markets, caused delays for projects in emerging markets and, in some cases, stopped production in Europe,” the Estonian senior EU official told E&T.

The continent’s booming wind industry and progressing solar sector are predicted to contract by 33 per cent and 20 per cent this year, as market uncertainty and Covid-19’s impact on cross-border trade take hold.

In response, Simson says it will mean “on the one hand, supporting the renewable energy supply chains and on the other, investing in big infrastructure projects that stimulate the economy and are necessary for a climate-neutral energy system”.

Governments are largely on board with that philosophy, and early in May eight EU members called for a dedicated industrial policy just for solar and wind development.

The existing renewable energy target for 2030 should be a safety net of sorts for demand, but countries including the UK and Ireland look set to miss 2020 benchmarks, despite the threat of financial penalties.

That is why the Commissioner insists it should be business as usual for the sector and why she has “asked EU energy ministers not to cancel or delay tenders for new renewable projects due to the crisis”.

Big investors like the European Investment Bank are on the lookout for safe projects to pump money into, and renewable energy’s previous rating as a low-risk but low-return punt could make it an attractive option. The Luxembourg lender’s decision to mostly scrap its involvement in fossil fuels also stands to play into the hands of solar and wind, not just in the EU but in any country where the bank decides to make investments.

Virus lockdown measures are starting to be lifted but economic damage is ongoing and will continue for months to come. The European Commission said in early May the virus would scrub 7.4 per cent off the EU’s GDP by the end of 2020.

Each of the bloc’s 27 members is predicted to suffer – the UK is on track to an 8.3 per cent contraction. Growth is expected to return in 2021 but the question is how to limit this to a rebound of financial fortunes not emissions.

Simson insists that “we should use this moment as much as possible for structural change. If the reduction in energy demand is only brought on by the fact that crisis has stalled industrial production or made people travel less, it’s inevitable that we’ll see a rebound. But if we make our energy systems greener, more efficient, smarter, better integrated, that will allow for lasting change,” she added.

Building renovations at a massive scale are touted as a silver bullet for both climate and coronavirus woes. The sector sucks up 40 per cent of energy and emits almost as much in emissions, yet receives far less attention from policymakers than other areas.

A new initiative due in September will address that. “It is one of those measures that is especially well suited to post-crisis times: it boosts economic activity, creates jobs and supports small local companies, while reducing energy bills and improving people’s quality of life,” Simson says.

Energy ministers were reportedly enthusiastic about the so-called ‘renovation wave’ idea when they discussed it during an e-meeting at the end of April. The plan is to focus first on hospitals, schools and SMEs, as well as tagging traditional renovation works like insulation upgrades with rooftop solar and electric-car charger installations.

Renewable energy sources EU member states, inline infographic

Image credit: Eurostat

The last EU Commission, which was in charge from 2014 to 2019, firmly established the bloc’s ‘Energy Union’, which is supposed to wean Europe off power imports, particularly Russian gas, and help countries ramp up their clean energy capacity.

Work on establishing the EU as a power-broker is ongoing. It will be particularly relevant to the UK, which is due to sever ties with Brussels at the end of December, given its geographical proximity and how closely integrated its energy market is.

One of the most complex issues Simson is working on is a carbon border tax. The idea is to levy a tariff on unsustainable imports – those made using carbon-intensive production processes – that could undermine Brussels’ climate rules and convince industries to set up shop overseas, away from stricter emissions-cutting obligations.

“We need to assess all the options very carefully, including from the World Trade Organisation perspective,” Simson says. “We are currently exploring pilot sectors where the mechanism could be useful.”

Imports as diverse as cars, batteries and jeans have been suggested as candidates but details are sketchy. The plan is to monitor electricity imports, to make sure any power entering the EU is up to green code.

That means that existing and planned cross-Channel cables could cause diplomatic friction if negotiations on issues such as emissions trading systems and a climate rulebook fall apart.

Simson is adamant, though, that Commission colleague Michel Barnier, the EU’s lead Brexit negotiator, is “working hard on negotiating a future relationship with the UK” and that the plan, as far as energy goes, is to ensure cooperation on civil nuclear and offshore wind.

There are potentially more radical changes on the horizon but they will depend on how strongly officials like Simson push for their implementation.

Prime among them is an update to the EU’s energy taxation law, which sets excise duty rates. The legislation dates back over a decade and exempts aviation fuel but the tricky task of securing unanimous support has made any tweaks hard to come by.

“We need to bring the European taxation framework in line with our climate and energy goals. The directive is 17 years old and simply no longer fit for today’s challenges. The crisis does not make this task less urgent. Quite the contrary,” says Simson. “This is a good moment to push ahead, given the momentum behind the green transition and historically low oil prices. The sooner we put a proposal on the table, the better.”

Simson also says that “getting rid of fossil-fuel subsidies while lowering taxes on electricity can nudge us in the right direction, without putting too much pressure on the consumers”.

G20 countries pledged more than a decade ago to scrap subsidies but there has been little progress in that regard.

Coronavirus is the short-term focus of most policymakers, but, for people like Simson, there are more complex and more well-established problems to think about.

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