Avoiding the next energy crisis: Why the Fit for 55 negotiations are crucial

This is an opinion article by an external contributor. The views belong to the writer.
Avoiding the next energy crisis: Why the Fit for 55 negotiations are crucial
Niederaussem power plant , coal-fired (lignite), run by RWE. Near Cologne in North-Rhine Westphalia, Germany . Medow with cows, cooling towers, smoke stacks.According to a WWF study, this power plant is number ten of the worst climate polluters in Europe.

The time to repair the roof is when the sun is shining, as President John F Kennedy famously said in 1962. Unfortunately, we don’t have that luxury - it’s already pouring with rain. We’re in the middle of an energy crisis, and political leaders are understandably scrambling to stop energy bills going through the (poorly-insulated) roof.

Short term measures to help people weather the storm are essential, but they won’t fix the roots of the problem. Indeed, some of them risk locking us into even greater fossil fuel dependency - and climate catastrophe. At the same time EU negotiators are trying to weaken the very measures that would support vulnerable households in the longer term - while promising big polluters they won’t need to pay for their emissions.

The negotiations between the EU institutions (trilogues) on the Fit for 55 package aren’t front page news outside the Brussels bubble. The name refers to EU’s target of reducing net greenhouse gas emissions by at least 55% by 2030​. Negotiators from the European Parliament, Council and Commission are currently locked in detailed discussions trying to thrash out an agreement on a huge suite of climate and energy legislation, covering everything from energy efficiency targets to the rules on vehicle emissions standards.

The results could make a real difference: to energy resilience and independence, to cutting emissions and bills, to securing millions of green jobs for the future, and to helping us avoid the next crisis. Provided they’re not watered down.

Money for industry with no strings attached? A strong case for conditionality

One of the most heavily-lobbied pieces of legislation in the package is the revision of the Emissions Trading System (ETS). The ETS aims to cut emissions from the power sector and energy intensive industries by encouraging the green investment needed to make sure they decarbonise rapidly - thereby reducing their dependency on fossil fuels and the associated price volatility.

This is where the trouble starts, as the ETS looks like Swiss cheese - full of holes. Loopholes that have handed industry billions of euro’s worth of free permits to pollute. Simply put, most of the industries falling under the ETS and considered at ‘risk of carbon leakage’ don’t have to pay for all their emissions. They pay only for what they emit above the level of these free allowances.

The result: over the last decade industries have managed to pay no penalty for more than half of the carbon pollution they’ve pumped into the atmosphere as calculated by WWF European Policy Office in its upcoming report on ETS revenues.

Since 2005, these free permits to pollute - which were always meant to be temporary - have been justified on the grounds that if industry had to pay the ‘real’ carbon price, it would have been prevented from investing in decarbonisation, or have lost market share relative to producers in other countries.

But almost twenty years later, industrial emissions have barely decreased, and investment in decarbonising and getting off fossil fuels has been very limited. Leaving us just as vulnerable to global fossil fuel markets as we were, and no further forward when it comes to clean industry development. Things might be very different today if the value of free allowances - a huge cost for Member States in forgone revenue estimated by WWF to €98.5 billion between 2013-2021 - had been invested in clean technologies instead.

Industries may well need support to invest in the clean energy transition, perhaps most importantly confidence in the direction of future policy. But free permits to pollute without any conditions attached - meaning requirements that companies have to meet in order to keep receiving them - have demonstrably failed.

The current revision of the ETS is meant to set the pace for the next decade, which is critical to keeping temperature rise below 1.5°C. But the fact that free allowances will continue beyond 2030 and that Member States seem reluctant to include any strong ‘conditionality requirements’ puts this at risk. It also shows a lack of realism as to the climate emergency - and the strength of the industry lobby’s grip on policymakers on this specific dossier.

If decision makers don’t change tack on this, the risk is that taxpayers’ money will keep disappearing in a puff of smoke into industry shareholder pockets, rather than being spent on decarbonisation. And in 2030 we’ll be right where we are now: vulnerable to another fossil fuel crisis, dependent on an outdated high-emission business model, and at risk of seeing other countries take the lead on the low carbon industries of tomorrow.

A strong Social Climate Fund for citizens

During these same negotiations on the revision of the ETS, policy-makers are discussing the introduction of what is being called ETS2, which will put a carbon price on the use of fossil fuels for road transportation and the heating in buildings.

Unfortunately for vulnerable households, the concerns about higher costs for industry, which has the money to spend on lobbying, don’t seem to extend to them. While politicians in both the Council and the Parliament defend industry’s free permits to pollute, they look set to agree on cutting the budget of the proposed Social Climate Fund (SCF).

The idea of the SCF is to address both the social and the climate crises in parallel, and to help households who need it most to adapt to - and benefit from - the transition away from fossil fuels. This could be, for example, by helping people insulate their houses and so cut their bills and avoid higher costs from the ETS2. To put this in context, with 40% of our energy being used to heat buildings, a dramatic change in energy efficiency could be made by funding better insulation - cutting bills, emissions and fossil fuel imports in one fell swoop.

But at present it looks as though significant future support will only be available to well-funded industries, not to struggling households. Without targeted support for such groups, renewable energy and energy efficiency measures will remain for the wealthy few, undermining not just energy independence and climate action but also social justice.

If support is to be provided to carbon intensive industries, then negotiators need to apply that logic equally - which means making sure that the SCF budget isn’t capped at an arbitrary level and that it genuinely helps people get out of fossil fuels rather than fund their ongoing use.

To sum up: helping people through the current energy crisis is the immediate priority. But the policies in the Fit for 55 package are about the coming decade, not the next three months. And the decisions involved, including on conditionality and the SCF, are vital to preventing future energy crises. Not to mention stopping the unfolding climate catastrophe that will make today’s problems pale into insignificance.

By Alex Mason, Head of climate and energy at the WWF European Policy Office

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