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View from Brussels: A well-timed energy crisis?

Image credit: European Union

Sky-high energy prices continue to worry governments across Europe, but there may be a silver lining to this particular crisis, as it could end up ironing out the kinks in the EU’s Green Deal before it is too late.

It has been all hands on deck for the European Commission this month, as the EU’s executive branch tries to make it perfectly clear that clean energy policies are not responsible for the spike in prices.

Politicians like Hungary’s Viktor Orban, the Czech Republic’s Andrej Babis and Russia’s Vladimir Putin have in recent weeks suggested that the EU’s “misguided” attempts to decarbonise have burdened their citizens with inflated energy bills.

But that theory has already been widely debunked by both the Commission and energy analysts, who have calculated that the price spike is predominantly due to fossil gas shortages.

The EU’s carbon market, which charges big emitters for every tonne of pollution, has been trading at record highs but is only marginally responsible for pushing the price up, according to the Commission’s climate chief, Frans Timmermans, and green groups like Ember.

"It is responsible to a very small extent, a maximum is one fifth," Timmermans told environmental ministers at a meeting earlier this month.

"The problem is elsewhere. The problem is in the market conditions which at this stage, with the highest demand in 25 years, create these price hikes,” he added, referring to gas storage issues across Europe.

Timmermans is this week in Bulgaria, where the Green Deal is not popular at all, to try and convince the caretaker government to phase out coal power. The current date being suggested is 2040, which many consider to be far too late in the day.

Countries like Poland and Spain had pushed for Brussels to intervene in the emissions trading system to prevent what they called speculation on the market and to stop the price going up unsustainably. The Commission has refused to tinker with the ETS.

That is probably a wise move, given that it has taken the carbon market nearly ten years to start doing its job and make it too expensive for emitters to keep polluting without cleaning up their act. At around €65 per tonne currently, the price is high enough to spur changes.

This week, though, the EU did lend national governments a little bit of a helping hand, publishing what the Commission calls a “toolkit”, designed to aid the member states in riding out the crisis.

It is mostly a summary of many of the measures already available to governments, including tax breaks on electricity, extra state aid support for smaller companies and a timely reminder that building out more renewables and increasing energy efficiency efforts are the right solutions.

All 27 EU governments have nearly submitted their recovery plans, in-depth strategies that countries need to put together in order to tap into nearly €800 billion in cheap loans and subsidies that the Commission has put together to help the pandemic recovery effort.

Countries are expected to spend their slice of the pie on green and digital projects to help future-proof Europe’s economy if – or when – another crisis hits. 

There is still a lot of negotiating to be done on new and updated climate rules that will govern a lot of EU policies up to 2030. Those updates were only proposed by the Commission in July and still need the approval of the European Parliament and governments.

Talks will only begin in earnest early next year, so this price crisis may have struck at the right time as it reinforces the EU institutions’ position that more clean energy is the solution. That may then be reflected in some of the negotiations on targets and standards.

It may also convince the Commission and MEPs not to push too hard on laws that will have a greater social impact, including one proposal that would include road transport and the buildings sector in the carbon market.

What this all means for gas in the long run is still not clear. Many EU governments are not ready as yet to ditch it as an energy source or a ‘bridge fuel’ to phase out coal.

The Commission also has to decide whether gas should be granted a green label under its sustainable investment rulebook, in what is one of the most politically-charged decisions currently pending. A similar decision on nuclear power also threatens to split the bloc in two.

This crisis won’t kill the EU’s Green Deal before it even gets a chance to shine but it may well define the shape of it in the years to come.

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