“Extra-ordinary times require extra-ordinary measures,” said President Macron and Chancellor Merkel when they presented their proposal for a 500 billion EUR recovery pact the other week. Ursula von der Leyen had the same message when she presented her updated 1 trillion EUR budget proposal combined with a 750 billion EUR recovery plan to the European Parliament on 27 May.
The proposal has faced different kinds of concerns by several commentators. Difficult negotiations can be expected on directing ETS auctioning revenues to the EU budget or adopting new EU taxes, be it carbon border tax, digital tax, tax on fossil non-recyclable plastic or specific tax on large companies that benefit from the EU single market - and using that money for financing the proposed recovery plan. Everybody knows that the final outcome will be less ambitious and generous than the proposal. But this is a good basis for further discussions.
How does the recovery package look like from an energy company’s perspective?
To start with, the EU Commission earns credits both by maintaining the Green Deal on track with an almost unaffected timeline and by being so clear that the EU remains committed to the EU Green Deal and the objectives relating to decarbonisation and digitalisation. This determination of the Commission is highly valued as there has been also opposite views by those who would rather prefer to use the pandemic as an excuse to postpone green policies. It’s also both smart and necessary to attach green strings to economic stimulus measures – the post-crises EU must be greener and more sustainable.
Therefore, we welcome the aim of the EU Commission to spend at least 25% of the EU budget on climate action. This is 5% more than in the current budget.
These proposals get a thumb up from us:
- Clear commitment to decarbonised and digitised Europe including proceeding with the Green Deal while ensuring the competitiveness of the European energy intensive industries e.g. through carbon border tax or other EU level carbon leakage measure.
- A strong push for a clean hydrogen economy based on renewables and gas. Hydrogen will play an important role in decarbonising energy intensive industries and in society-wide electrification hence some EU funding is needed to kick-start hydrogen production in Europe. However, CO2 free nuclear should obviously be added in the scope of “clean” hydrogen.
- Bringing CCS and CCU clearly on the EU agenda as technologies contributing to carbon neutrality.
- Restated push for Circular Economy and the implementation of the related strategy.
For these we give a thumb down:
- Ignoring the role of CO2-free nuclear in decarbonisation. Nuclear should be treated in the same manner as other CO2-free technologies. Nuclear still counts for almost 50% of the CO2-free electricity production in the EU and it provides firm energy capacity for many countries. Keeping this valuable capacity up and running in these countries requires constant investments. New nuclear developments should be encouraged as it can significantly contribute to sector coupling e.g. in hydrogen and heat production. From an energy system perspective stable nuclear makes a good match with volatile renewable energy as our experience in the Nordic countries show.
- According to the proposal, the EU spending will be guided by the sustainable finance taxonomy. This approach is justified provided that the outcome of the still pending energy related aspects will be reasonable. The final outcome of the taxonomy should accept that both nuclear and gradually decarbonised gas will be playing an important role in the energy transition towards a fully decarbonised economy.
- Proposal to transfer part of the ETS revenues to the EU budget would undermine climate action and risk member states to introduce overlapping national taxes to compensate for the loss of auctioning revenues which are highly important for financing national climate actions (around 80 % or auctioning revenues have been used to finance climate related activities in member states).
- A point to raise in the context of the planned carbon border tax is that it would most likely hit also renewable energy technologies (solar panels, wind power plan components) coming from third countries hence increasing the investment costs for new renewables in Europe. Compensating this kind of costs would be better target for subsidies compared to planned RES auctions.
Restoring functioning internal market quickly is important
When the corona crises really kicked in, the EU Commission was quick in allowing member states to close the national borders, giving up budget discipline and pretty much allowing member states to drop competition and state aid rules when trying to prevent companies from collapsing. This is an understandable approach in the peak of the crises but it’s crucial to find the way back to restore the internal market as soon as we are past the worst phase of corona pandemic.
The package, if correctly implemented, can help boosting the development of internal energy markets. Build-out of stronger pan-European electricity network, both internal and cross-border is clearly a top priority to enable energy transition. Full-scale electrification or integration of renewables into the electricity market to match with the political decarbonisation objectives, would not be possible without extensive electricity grid. Even more importantly than financing, the EU should put emphasis on removing barriers for new grid and renewable investments – this is where the real bottle neck is.
The EU has always developed through crises. The coming months will show whether this old truth applies also to the current crises which has once again revealed how challenging it’s for the EU to take a strong leadership in issues where the competence lies with the member states. On the other hand it has also been a good reminder of the real value of the EU internal market based on free movement of people, goods, capital and services. And what solidarity or lack of it means in practical terms. No coincidence that the Commission has selected hashtags like #Solidarity and #StrongerTogether to be used in the context of its proposal. It is in the interest of all of us to ensure that the EU keeps together and the internal market will be there for the European people and business also in the future. Even when it comes with a price tag.