ourEconomy: Investigation

EU fails to reduce dependency on fossil fuels amid soaring energy bills

As the global energy crisis intensifies, the EU is renewing its commitment to fossil fuels instead of investing in green energy

Maxence Peigné
13 October 2021, 9.48am
European Commissioner for Energy Kadri Simson speaks about European solutions to the rise of energy prices for businesses and consumers at the European Parliament, in Strasbourg, France October 6, 2021.
|
Jean-Francois Badias/Pool via REUTERS

As Europeans suffer surging energy prices, the EU is renewing its commitment to costly natural gas instead of investing in cheap renewables, it has been revealed. 

A new investigation from Investigate Europe has found that lawmakers have paved the way for new cross-border pipelines, while EU auditors have highlighted a huge investment gap in green energy.

Since the beginning of 2021, wholesale gas prices in Europe have soared by more than 300%. As natural gas is often used to generate electricity alongside heat, consumers have felt the full blow of the increase. In Spain, electric bills have risen by a third so far this year. In Italy, they are expected to jump by 40% in the next quarter.

“Today’s situation underlines that we have to end our dependence on foreign, volatile fossil fuels as soon as possible,” Kadri Simson, the EU commissioner for energy, recently declared.

Natural gas accounts for a quarter of the EU’s power mix, second only to oil. As of 2019, the majority of natural gas comes from Russia (41%) and, to a lesser extent, Norway (16%). Although it offers a lower-carbon alternative to coal, it contains high levels of methane, which contributes to global warming. 

The European Commission itself has admitted that its gas consumption is not compatible with its pledge to become climate neutral by 2050 and slash emissions by 55% before 2030. Its own assessment concluded that gas consumption must be “reduced to a fraction of current levels” to reach net-zero goals.

EU lawmakers still back gas

On September 28, the European Parliament backed new cross-border pipelines, under the so-called TEN-E (Trans-European Networks for Energy) regulation. This controversial framework defines which infrastructures can be on Europe’s fifth list of projects of common interest (PCI).

Being included in this framework entitles corporations to fast-tracked permits and EU grants. MEPs agreed that gas bids would be eligible for quick approval, but not for cash from the PCI’s dedicated fund, the Connecting Europe Facility (CEF).

However, a number of loopholes mean that gas projects will likely still receive public funding. Firstly, pipelines blending gas with an unspecified amount of hydrogen will still receive subsidies until 2027. Hydrogen can be produced from renewables, but at the moment 95% of hydrogen production is derived from fossil sources. PCI beneficiaries traditionally receive more money from other public pots than from the CEF. The endorsement also creates incentives for banks to step in with additional funding.

Observers now suspect the next list, to be published later this winter, could award special status to more than 70 gas developments – up from 32 two years ago. This is despite analysis from Artelys, a data-science consultancy, highlighting that most previous projects were “superfluous”.

The development also overrides Simson’s proposal to ban gas from TEN-E revisions.

‘The gas lobby is extremely powerful’

According to Marie Toussaint, a French MEP, the EU Parliament caved to the industry’s demands. “The gas lobby is extremely powerful,” she told Investigate Europe. “They’ve been manoeuvering a lot. I am a Green MEP and they still send me three or four emails every day.”

A recent investigation by Global Witness and Corporate Europe Observatory revealed that the TEN-E rapporteur, Polish conservative MEP Zdzisław Krasnodębski, has refused to disclose meetings with businesses. 

“Lobbying is pernicious and embedded at the heart of the system,” Toussaint said. The MEP believes sponsoring fossil fuels is wrong when bills are going through the roof.

To get their way, gas lobbyists have been able to manipulate European guidelines – or rather the lack of them. The EU’s common classification for sustainable activities, known as its Taxonomy Regulation, is elusive on the matter. By its own definition: “The Taxonomy Regulation neither includes nor excludes natural gas.”

The EU Commission is not doing enough

Such ambiguity around standards could thwart climate efforts, as the European Court of Auditors highlighted in a report last month. Eva Lindstrom, the paper’s lead author, told Investigate Europe that vague rules create a market failure whereby investors are unable to identify which projects could become stranded assets. “There must be more information on what is green and what is brown,” explained Lindstrom. “We need the private sector, but we can’t expect companies to just be good. They’re there to make money.”

The report’s main conclusion was that the European Commission is not doing enough to stimulate sustainable investments. Investment of €1trn will be needed every year to complete the transition. But under current plans the EU only plans to provide €200bn in each annual budget. “The investment gap is huge,” Lindstrom said.  

‘Politicians will try to benefit for their gain’

At the same time however, others are arguing that Brussels is doing too much. Polish prime minister Mateusz Morawiecki has accused the EU’s environmental agenda of driving the power crunch. Frans Timmermans, the Commission’s Green Deal chief, played down the charge, insisting that just “one-fifth” of the higher fees could be attributed to carbon policies. 

As the blame game unfolds, Timmermans’ job could be about to get tougher. Plans to extend the carbon market to transport and construction in particular will be a tough sell. The gilets jaunes (‘yellow vest’) protests in France were ignited by a fuel tax rise in 2018, with an estimated three million people taking to the streets.

“There’s a risk that energy prices could have consequences on the Green Deal,” Annika Hedberg, of the European Policy Centre, told Investigate Europe. “People are inherently opposed to change and some politicians will try to benefit for their gain.” Nonetheless, Herdberg stresses that a decarbonised economy could reap clear benefits, including cheaper power. 

‘If we had higher renewables, we’d be brushing off this crisis’

Many believe that the mere presence of gas in Europe’s grid is a key part of the problem. Europe’s electricity market operates with the aim of covering the following day’s demand. Under this system, the total price is pegged to the most expensive energy source used to meet expected demand. 

In other words: if 100% of demand is met with wind or solar sources, tariffs can be very low. But when expensive fossil fuels enter the mix, the final cost is indexed to their value.

“If we had higher renewables and less exposure to gas, we’d be brushing off this crisis more easily,” Raphael Hanoteaux from think tank E3G said. In parallel, the EU should decrease energy needs and electrify heating, he noted.

But in the short-term, the priority must be to provide “social support to alleviate the price spike for households.”

Several governments have already implemented emergency measures to cushion the impact on households. Spain has announced a €2.6bn clawback of energy firms’ profits, France has vowed to freeze utility rates, and Italy has promised to invest €3bn to offset price rises. Such makeshifts may shield their citizens momentarily. 

The Commission is expected to give its verdict on whether to label gas as sustainable in November, before announcing a much-anticipated policy package in December.

Empower and protect, don’t prohibit: a better approach to child work

Bans on child labour don’t work because they ignore why children work in the first place. That is why the International Year for the Elimination of Child Labour will fail.

If we truly care about working children, we need to start trying to keep them safe in work rather than insisting that they end work entirely. Our panelists, all advocates for child workers, offer us a new way forward.

Join us for this free live event at 5pm UK time on Thursday 28 October.

Economics journalism that puts people and planet first. Get the ourEconomy newsletter Join the conversation: subscribe below

Comments

We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData