By UME
Poland/European Union – At their meeting on 16 December, which focused on the rise in energy prices, the 27 EU Member States were unable to agree on two issues that are crucial for the future of Europe: the market for CO2 emission allowances and the energy “taxonomy”, i.e. the list of energies used under the “Green Pact” and its most recent offshoot, of the “Fitfor55” plan, which is being pushed forward by the first executive vice-president of the European Commission and EU Commissioner for Climate Action, Dutch Labour politician Frans Timmermans, should be considered clean.
Timmerman’s crusade against the Visegrád states
Having clashed with Poland and Hungary on rule of law issues during his time as First Vice-President of the Juncker Commission, responsible for better regulation, interinstitutional relations, the rule of law and the Charter of Fundamental Rights, Timmermans now has the opportunity to launch his crusade against the conservative governments of Central Europe, for which he has never made a secret of his hostility. with the help of climate policy.
It is Polish Prime Minister Mateusz Morawiecki and his Czech counterpart Andrej Babiš, for whom this was the last summit, who are denounced as responsible for the summit’s energy policy fiasco. Their demand: exclude speculators from the European market for emission rights and reserve the market for companies affected by CO2 emission certificates. Other countries support this demand, but did not go so far as to block the adoption of conclusions of the European Council (meeting of heads of state and government) that would have allowed the Council of the EU (meeting of competent ministers) to legislate together with the European Parliament. These are Hungary, Slovakia and, to a lesser extent, Bulgaria, but also Spain.
Renewable energies take revenge for Western Europe
However, Spanish Prime Minister Pedro Sánchez was willing to accept conclusions without commitments regarding a reform of the CO2 emissions rights market. In addition to the issue of emission allowances, which is less relevant for Spain than for Poland and the Czech Republic, which still have many coal-fired power plants (which still account for almost three quarters of electricity generation in Poland and almost half in the Czech Republic), Spain would be interested in joint gas purchases with a storage system managed throughout Europe, while the V4 countries, unlike Spain or Germany, had ensured that: to go into the winter with well-filled storage. Spain has also greatly expanded renewable energy, but this does not prevent Spain from seeing record increases this year due to the instability of these energy sources and gas prices. So if Madrid also calls for a reform of the emissions trading system, this difference in the situation perhaps explains the bitterness of the socialist Sánchez after the summit:
“We regret that no agreement has been reached in the Council,” said the Spanish Prime Minister, “but we are in the process of paving the way. This does not mean that these issues will not continue to be addressed, as it has been agreed that the measures relating to gas prices and the wholesale market will be discussed further at the next Council meetings. We were very close to reaching an agreement, getting the Commission to be more forceful and detailed in its reports on the electricity market and the short-term price response to be published in April next year, but unfortunately some states did not accept this minimal agreement, which was sufficient for us as it allowed for progress.”
Therefore, in view of the refusal of Poland and the Czech Republic not to do anything about the exponential increase in the price of emission allowances, the President of the European Council, Charles Michel, decided to end the summit after a 14-hour meeting. Since the beginning of the year, the price of one tonne of CO2 equivalent emitted has risen from €31 to €90. This instability makes economic calculation impossible for businesses and affects the prices paid by businesses and households, leading to inflation and impoverishment. In Poland, the risk of impoverishment from CO2 emission allowances is exacerbated by the fact that 5.8 million (40%) of households or 15 million people are heated via heating networks fed by coal-fired cogeneration plants, and these households are directly feeling the effects of the increase in the price of emission allowances. Poland’s largest electricity producer PGE alone, which operates around 40 power plants that are mainly fired with coal, paid 6 billion zlotys (about 1.3 billion euros) for its emission rights in 2020. That was twice as much as in 2019 and with a much lower price per ton of CO2 equivalent emissions than this year. The other major power producer, Enea, spent €1.1 billion on emission allowances in 2020, 45% more than in 2019.
The absurd thing about this system is that in just a few years, Polish electricity producers will have to pay an amount equal to the expected cost of the Polish nuclear energy program, estimated at 80 billion zloty over 20 years.
Europe threatens an energy price fiasco – V4 steer against it
“Emission allowances should never have been on the market, they are a tax, it is impossible for a tax to be on the market, this is complete nonsense,” Czech Babiš told the press on the sidelines of the summit, “and the Commission itself influences the market by withdrawing allowances.” Under the Green Pact, and perhaps soon the even more ambitious Fitfor55 plan, emission allowances will indeed be gradually reduced, increasing the price of emission allowances resold on the market. The idea was that the companies affected by these allowances, which would emit less, could resell their unused rights to other companies that have exhausted their allowances, thus creating an incentive to emit less CO2. The problem is that the market is open to all and some hedge funds are now helping to amplify price volatility, even though the scale of the problem is disputed in a recent report prepared by EU authorities.
Unlike his Spanish counterpart, Polish Prime Minister Mateusz Morawiecki believed that “at such a historic moment, we cannot afford to adopt conclusions that are practically empty,” because “today we are facing an unprecedented price crisis in the energy markets, in the gas market, in the electricity market. (…) This price crisis with very high energy prices has an impact on inflation, on ordinary citizens, on people, on Poles, Croats, Slovenians, all EU citizens.”
“Energy was the most important issue and I regret that my last council ended like this,” concluded Czech Andrej Babiš, who was also unwilling to accept conclusions that establish the status quo.
In a video broadcast on the eve of the December 16 summit, Hungarian Prime Minister Viktor Orbán made the issue a problem of defending families. “We will, together with the Poles, Czechs and Slovaks, introduce changes to the energy price rules and make energy cheaper for families,” he said. “We also want to prevent Brussels’ plan to impose a tax on homeowners and car owners” and “Czechs, Poles, Slovaks, Hungarians and perhaps Bulgarians will fight together to protect the interests of families,” Orbán said.
EU: Soon emissions trading for transport and housing sectors!
The Hungarian Prime Minister was alluding to Brussels’ plans to extend the emissions trading system, which previously only applied to industry, energy and aviation within the EU, to the transport and residential sectors. Shortly before the meeting of heads of state and government on Thursday, the Polish Prime Minister also assured that he would “protest very loudly against the inclusion of district heating, hot water and transport, i.e. fuels, in this system [of emission rights].” The new Czech Environment Minister in Petr Fiala’s government, Anna Hubáčková, is of the same opinion: “The proposal to include road transport and building heating in the emissions trading system is very difficult for us to accept in its current form, as the likely negative social effects could significantly increase the risk of energy poverty in our country,” she said before her first meeting with her European Counterpart.
Another point of contention at the summit was the “taxonomy” prepared by the European Commission, i.e. the list of energies that are to be considered clean under the EU climate package. The V4 countries, as well as most other former Eastern European countries (Estonia, Croatia, Slovenia, Romania, Bulgaria) and Finland, as well as France, want nuclear energy to be included in this taxonomy. Austria is strictly opposed, as is Luxembourg and, to a lesser extent, Germany. Germany has opted to phase out nuclear energy and instead wants gas to be included as transitional energy in the European taxonomy to replace coal. For the same reasons, and because Poland, unlike the Czech Republic or Hungary, does not yet have nuclear power plants, it also calls for gas to be included in the taxonomy.
The Polish intransigence at this summit could also be linked to the refusal of the European Commission, which is supported by some member states (the Netherlands, France…) to release the funds earmarked for Poland and Hungary from the Next Generation EU economic recovery plan in the context of the dispute over “the rule of law” and “European values”. In Poland, voices are being raised within the government camp, including in the government, who want to block the EU climate package as a retaliatory measure, also because it will cost the Poles particularly dearly. Some suggest that Poland simply withdraw from the EU emissions trading scheme, but Prime Minister Morawiecki is leaving it at proposing a cap on the price of CO2 emission allowances for the time being.
“We need to adapt the EU’s climate policy to the capabilities of all countries, not just the expectations of the richest,” the Polish prime minister said in October. “For this reason, I will propose to the European Council two solutions that can effectively slow down the rise in electricity prices. Firstly, the Union should introduce maximum rates for CO2 emissions, at least for a certain period of time, because they are the ones driving inflation in energy markets.” The former bank manager had pointed out that “CO2 emission certificates have become a commodity that is traded on the stock exchange in the same way as gold, oil or company shares. (…) In 2017–2018, people paid between €5 and a maximum of €15 per tonne. Since then, the price is now over 60 € [and now in December even 90 €, editor’s note] and in just one year the prices have risen by 100% [now 200%, editor’s note]. It’s pure speculation that brings money to a handful of investors and causes losses to millions of families and thousands of businesses.”
“Second,” argued Mateusz Morawiecki, “the EU must abandon the new emissions trading system for buildings and transport, because if this system is introduced, energy prices will skyrocket again and the majority of EU citizens will be hit by the purse.