Europe’s green ambitions could be hit as gas prices reach record highs

A woman on the bicycle rides pass the power station in Neurath, Germany.
NurPhoto | NurPhoto | Getty Images

LONDON — The European Union could struggle to advance its green agenda as gas prices soar across the bloc, according to experts who warn against slowing down investment into the sector.

The European Commission, the executive arm of the EU, has vowed to become carbon neutral by 2050, presenting a concrete plan to reduce greenhouse gas emissions by at least 55% from 1990 levels by the end of this decade.

However, these ambitions could be hit as a natural gas shortage on the continent drives prices higher. The front-month gas price at the Dutch TTF hub, a European benchmark, has risen more than 250% since the start of the year. It traded at about 74 euros ($87) a megawatt-hour on Tuesday — just shy of its record high of 79 euros it hit last week.

You can’t stop financing windmills for people’s bills.
Jacob Kirkegaard
senior fellow, German Marshall Fund of the United States

The recent spike is already having a tangible impact. Spain, for instance, has announced emergency measures to limit the profits that energy companies can make from gas alternatives, including renewables. The government is also hoping to cap what consumers are paying for their electricity.

“Soaring energy prices have hit economies across Europe, and if Madrid’s actions are imitated elsewhere as governments prioritize cheap energy over the green transition, the EU’s credibility in advancing global climate action could take a hit,” Henning Gloystein, director of energy at the consultancy firm Eurasia Group, said in a note Friday.

Spain is not the only country to cap energy price increases, with France and Greece making similar moves. But the plan in Spain has been the subject of some criticism.

Iberdrola, a Spanish energy firm with a focus on renewables, said the move “would undermine investor confidence in the country” at a time when the nation needs private money to achieve its climate ambitions.

Had we had the green deal five years earlier, we would not be in this position.
Frans Timmermans
EU Climate Chief

“The risk to climate policymaking lies perhaps mostly in a loss of credibility ahead of the global COP26 climate talks in Glasgow later this year,” Gloystein told CNBC via email.

“If wealthy countries in the EU are seen subsidizing energy for households that is in part supplied by fossil fuels, then the EU can hardly tell poorer countries to stop subsidizing household fuel consumption supplied by fossil fuels,” Gloystein added.

Meanwhile, Jacob Kirkegaard, senior fellow at the German Marshall Fund of the United States think tank, said he is not overly worried at this point, but that the ongoing energy crisis “makes it even more important that the Spanish government finds other sources of financing.”

“You can’t stop financing windmills for people’s bills,” he said, adding that countries should not ease their investments in greener energies.

The EU’s fault?

There is a wider problem, however: Some European leaders and lawmakers have blamed the EU for the energy price increases.

Polish Prime Minister Mateusz Morawiecki, for instance, said earlier this month that “Polish power prices are tied to the EU’s climate policies,” according to Politico.

When asked if comments like these could hurt the EU’s green ambitions, Kirkegaard said: “There’s absolutely that risk because clearly the Polish government want to extract more money from the EU for the green transition.”

Vapor rises from the cooling towers of the Turow coal powered power plant, operated by PGE SA, in Bogatynia, Poland.
Bloomberg | Bloomberg | Getty Images

Poland said Monday that it will keep a coal mine running, even though the European Court of Justice ruled it should be shut down. Under the same ruling, Krakow has to pay a 500,000 euro fine for every day that it keeps the mine open.

The EU’s climate chief, Frans Timmermans, has insisted that the price increases are not the bloc’s fault. “Only about a fifth of the price increase can be attributed to CO2 prices rising,” he told the European Parliament earlier this month. “The others are simply about shortages in the market.”

“Had we had the green deal five years earlier, we would not be in this position because then we would have less dependency on fossil fuels and natural gas,” he added.

‘Fair green transition’

Kirkegaard said that “it is too early to tell” if the price rises are going to jeopardize the EU’s green ambitions. The biggest risk, in his opinion, is whether public support for a greener economy falls because it is perceived to be impacting on their bills.

The European Commission announced earlier this summer that there would be special funds allocated to support the most vulnerable parts of the population in this green transition. The question is whether that will suffice.

“This must be a fair green transition. This is why we proposed a new Social Climate Fund to tackle the energy poverty that already 34 million Europeans suffer from,” Ursula von der Leyen, president of the commission said at a speech last week.

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