Tomorrow is the day: The first EU summit without Angela Merkel and with Olaf Scholz is on the agenda. One thing is clear: The chancellor will be under special scrutiny in Brussels because some of the new German government’s plans have irritated neighboring states – most recently, the further development of the EU into a “federal European state”. Till Hoppe has the details on how Scholz is likely to react to the three most prominent issues at the summit – energy prices, taxonomy, and the Ukraine crisis.
After the European Commission already presented its proposals for the transport sector’s modernization yesterday – read more in the news – the revision of the gas market regulations is to follow today. With a new legal framework for hydrogen and other “low-carbon gases”, the institution wants to bring the European gas network in line with the Green Deal targets. Timo Landenberger explains why environmentalists are convinced that this will not succeed and where the points of contention lie.
In the European Parliament, Dutch Renew MEP Jan Huitema has presented his draft report on the revision of the CO2 fleet limits for passenger cars. The negotiations in the ENVI Committee are due to start next week. The reactions of the other political camps show that the search for a majority compromise will not be easy. Huitema wants to tighten the CO2 reduction targets for new cars, Jens Gieseke of the EPP calls this “out of touch with reality”. Lukas Scheid analyzes the draft and highlights the lines of conflict.
Olaf Scholz and Mark Rutte have already spoken to each other on Monday during the new chancellor’s inaugural telephone call. Today, Wednesday, Scholz will have the opportunity to talk to his Dutch colleague in person and congratulate him on the successful formation of a government, following the latter’s nine months of coalition talks. Then the youngest and longest-serving heads of government in the EU will meet in Brussels: First at a summit with the states of the Eastern Partnership, then on Thursday for a regular European Council.
It is Scholz’s first appearance in the circle of EU heads of state and government. Interest in the new German chancellor after 16 years of Angela Merkel is likely to be high. This is also because some of the plans of the traffic light coalition partners have caused irritation elsewhere. The plea in the coalition agreement for further development of the EU into a “federal European state” caused questions not only during Scholz’s inaugural visit to Poland but also in the Netherlands. Voters there rejected the planned European constitution in a referendum in 2005, and further steps towards integration are still difficult to communicate.
How much Scholz differs from his predecessor in his appearance at his premiere remains to be seen. As far as the German positions are concerned, that much is foreseeable, little will change for the time being. The summit was largely prepared by the tried and tested team. Jörg Kukies, the new Secretary of State for Economic and European Affairs in the Chancellor’s Office, only received his certificate of appointment yesterday morning. The new foreign policy advisor Jens Plötner is also fresh in office.
In the discussion about the high energy prices, foreseeably one of the main topics of the summit, the German government is standing by its well-known position: Market interventions are “currently not considered necessary”, according to government circles in Berlin. The current high gas prices had a fundamental reason: worldwide increased demand and limited supply. Investigations by the European supervisory authorities Acer and ESMA had not revealed any indications of manipulation on the electricity markets or in the European Emissions Trading System. The Russian natural gas suppliers had also fulfilled all contractual agreements.
Several other governments, however, do not want to simply accept the sharp price increases. France and around ten other member states see structural causes for the high prices and are calling for corresponding changes, for example, to the European electricity market design. A good two weeks ago, Paris submitted concrete proposals aimed primarily at easing the burden on end customers.
In October, the heads of state and government had already discussed the issue once without bridging the differences between the two camps. The second discussion on Thursday is unlikely to be much more productive. The draft conclusions mandate the EU Commission to “deepen the analysis of the functioning of electricity markets and the monitoring of trade under the EU ETS and to take appropriate follow-up action”. It also said it wanted to monitor the situation and “revisit this matter if necessary”. However, with the end of the heating season in Europe, most experts believe that prices will fall again.
This should also ease inflation, which is currently causing problems in several member states. At least that’s the assumption of ECB chief Christine Lagarde, who will inform the summit participants directly after the Governing Council meeting. But doubts are also spreading among governments that the high inflation rates are as temporary as initially assumed.
On the fringes of the summit, it is also likely to be discussed how nuclear power and natural gas should be classified in the EU taxonomy for sustainable economic activities. It is not officially confirmed in Berlin government circles that the topic is likely to be discussed bilaterally, but according to Berlin, Scholz and Co are currently trying to defuse the ideologically charged dispute “in very intensive talks” with Paris, other EU partners and the EU Commission.
France is pushing for the Commission to present the corresponding delegated act before the end of the year, including a green label for nuclear power. The national energy mix is a matter for the individual member states, the Élysée Palace says, “and we hope that Germany will not question our decision in favor of nuclear energy“. Commission President Ursula von der Leyen has so far planned to present the legislation on December 22nd. However, the date could well move into the new year if the negotiations drag on – because von der Leyen would like to avoid upsetting Berlin or Paris.
Scholz is also maintaining continuity on another contentious European issue: Nord Stream 2. The SPD politician wants to keep the topic out of the discussion on how the EU should react to the deployment of Russian troops on the border with Ukraine. Any aggression by Moscow would have “very serious political and economic consequences” , according to German government circles. However, Nord Stream 2 is explicitly not included in this. The pipeline project of the Russian Gazprom Group is currently undergoing an ordinary approval process – which has been suspended anyway – so there is no need for a political decision.
The heads of state and government are likely to leave it at the summit with strong words directed at Moscow: “Any further military aggression against Ukraine will have massive consequences and considerable costs,” reads the draft of the summit declaration. However, they do not want to be more specific at the moment – according to diplomats, no sanctions are planned at the moment.
With a new version of the Gas Market Directive and the Network Access Regulation, the EU Commission wants to align the European gas market with the goals of the Green Deal, guarantee supply security, and reduce import dependency. Brussels authority will officially present its plans today. However, the drafts have already been circulating for several days and are causing controversy.
With the gas package, the Commission wants to pave the way for a more climate-friendly energy supply, for example by giving low-carbon gases a better position in the grids. To this end, the drafts provide for the introduction of an EU-wide certification system (Europe.Table reported). This will allow member states to compare different decarbonization options and consider them as viable solutions in their energy mix. The focus of the classification as low carbon fuels is on blue hydrogen. This is produced from natural gas, but the resulting carbon dioxide is captured from the air and stored (carbon capture and storage, CCS).
Markus Pieper, energy policy spokesman for the CDU/CSU in the EU Parliament, welcomes the Commission proposal. The fact that the authority wants to allow low-carbon solutions such as blue hydrogen is a good sign, the MEP told Europe.Table. Especially for the transition period until sufficient renewable energies are available, the use of natural gas-based technologies is indispensable. This applies in particular to Germany, which wants to phase out coal and nuclear energy at the same time. In addition, it is necessary to generate a market ramp-up for hydrogen as quickly as possible, for which sufficient hydrogen must be available. This can only be guaranteed if the various colors of hydrogen are used.
The Environmental Action Germany (DUH), on the other hand, sharply criticizes the package. It neither provides for a phase-out of natural gas nor for climate-friendly hydrogen infrastructure and therefore contradicts the EU climate targets. DUH managing director Sascha Müller-Kraenner calls the proposals an “early Christmas present to the gas industry”. For Michael Bloss, climate policy spokesman for the Greens in the EU Parliament, too, the “hype about gas is immensely dangerous”. The Commission’s proposals would prolong the fossil fuel era and create incentives for bad investments.
The MEP criticizes the Commission’s plan to allow the blending of hydrogen into the existing natural gas grid. What sounds like a sensible contribution to climate protection – after all, by feeding hydrogen into the distribution networks, low-carbon energy is made available everywhere – has environmentalists up in arms. Müller-Kraenner also criticizes that the limited amount of available “hydrogen is wasted for heating buildings, although there are cheap alternatives like heat pumps. This does almost nothing for climate protection”.
According to a study by the think tank Agora Energiewende, a blending of up to 20 percent is possible without requiring a fundamental overhaul of the gas network and household appliances. But that would be far too little to meet the EU’s climate targets, would only reduce emissions by seven percent, and would cause a huge increase in the price of gas. Not least because the gas industry can pass on the additional costs to consumers.
Müller-Kraenner calls it “downright paradoxical that household customers should also pay for the hydrogen networks, although they get nothing out of it except high costs.” DUH, therefore, calls for the development of a separate and decentralized infrastructure for green hydrogen in order to decarbonize specifically those sectors for which electrification is not possible.
The German Association of Energy and Water Industries (BDEW) rejects a concentration of the application on industry and welcomes the Commission’s step: “Only an approach that is as broad as possible guarantees a comprehensive market ramp-up, steadily growing contributions to the achievement of climate protection targets and the future viability of the gas infrastructure. Therefore, the heating sector must finally be fully recognized as a field of application for hydrogen,” says a BDEW spokesperson to Europe.Table.
Michael Bloss, on the other hand, speaks of new fossil dependencies “that will cost us dearly in view of the exploding energy prices”. The EU’s gas suppliers could “rub their hands” and fill their coffers. With the new gas package, the EU Commission explicitly wants to tackle the problem of import dependency and high energy prices. The drafts provide for long-term natural gas import contracts not to be extended beyond 2049, which is likely to hit the main supplier, Russia, particularly hard.
Measures to strengthen the security of supply are also foreseen, including approaches to gas storage and to ensure the highest possible levels at the beginning of the heating seasons. In addition, the Commission had already announced its intention to allow joint strategic gas purchases on a voluntary basis and by regulated network operators as part of the package.
Rapporteurs in the EU Parliament’s committees often have an enormously thankless task. They prepare the ground for an agreement between the Commission and Parliament. In doing so, they have to evaluate, comment on and, if necessary, correct the Commission’s proposals in their own draft report. Subsequently, however, they are often caught in the crossfire of the shadow rapporteurs and their groups, for whom the report usually goes too far or not far enough.
This is the task that Dutch Renew politician Jan Huitema has taken on in the Committee on the Environment, Public Health and Food Safety (ENVI) for a proposal for a particularly explosive regulation. Huitema is a rapporteur in the lead ENVI committee for the revision of CO2 limits for cars and vans.
In summer, the Commission brought the new limit values into play as part of the Fit for 55 package. The proposal for the revised regulation is the Commission’s most important lever for putting a stop to the still rising greenhouse gas emissions in road traffic. From 2025, emissions from the new car fleet would have to be 15 percent lower than in 2021, the year of comparison. By 2030, emissions would have to be 55 percent lower for passenger cars and 50 percent lower for light commercial vehicles. From 2035, only zero-emission vehicles would be allowed to be registered.
Huitema has now proposed in his draft report to increase the interim targets and add others:
From 2025: Reduction by
From 2027: Reduction by
From 2030: Reduction by
He supports the Commission’s goal of allowing only zero-emission vehicles from 2035.
Huitema also proposes to eliminate specific incentives for manufacturers to sell zero-emission vehicles as early as 2025. The Commission wants manufacturers to reduce their CO2 emission reduction targets by up to five percent by 2030 via a crediting system if they sell so-called “zero and low emission vehicles” (ZLEV). This means that if a certain proportion of new car sales consist of e-cars (BEVs) or plug-in hybrids (PHEVs), manufacturers will have to reduce emissions from their new car fleet by less on average. Environmental organizations have criticized these incentives as counterproductive: They would weaken the effect of CO2 limits, as car manufacturers could get the ZLEV bonus and subsequently not have to reduce the emissions of their new cars as much.
Huitema shares this argument. The advantage, in his view, would be that the emissions of PHEVs would be included in the fleet limits, instead of their mere sales figures helping manufacturers to get a ZLEV bonus. Huitema also wants to revise how emissions from PHEVs are considered: The current calculation is “misleading” because it is not based on representative data but on an estimate of how much is driven in battery mode. Huitema calls for real driving behavior to be used as a basis in the future. Manufacturers would then be required to produce PHEVs with the lowest possible emissions.
With the draft report, Huitema has created the working basis for the ENVI Committee. Now the challenge begins, together with the shadow rapporteurs, to put together a report on the Commission’s proposal that is capable of gaining majority support. “A hard piece of work”, predicts Jens Gieseke of the EPP. He describes Huitema’s draft as “out of touch with reality”. With sharp interim targets, Huitema ignores the “development and production cycles of manufacturers and pushes for a rapid combustion engine phase-out”, Gieseke told Europe.Table. He also criticizes both Huitema and the Commission for limiting their consideration of emissions to what is emitted from the exhaust pipe. Gieseke believes that the focus should rather be on the energy sources and demands that e-fuels should also play a role in a technology-neutral approach.
Bas Eickhout of the Greens stands on the opposite side of the opinion spectrum. For him, the proposal does not go far enough. A phase-out of internal combustion vehicles in 2035 does not fit in with the climate neutrality target for 2050, if one takes as a basis that almost half of the cars will remain on the road for longer than 15 years. In addition, several manufacturers are already aiming for an earlier phase-out. The regulation should therefore “support the pioneers and not reward the laggards”, Eickhout said. “We will therefore push for a clear zero emissions target for new cars and vans in 2030, with appropriate interim targets.”
Transport and Environment (T&E), the transport umbrella body, had called for a more realistic view of PHEV emissions, as well as an earlier end to ZLEV bonuses. Alex Keynes, clean vehicles manager at T&E, therefore welcomes Huitema’s draft report. However, he criticizes the draft for leaving the weight adjustment factor for the CO2 target untouched. This gives car manufacturers lower targets if they sell heavier vehicles, which promotes sales of emission-intensive SUVs and plug-in hybrids, says Keynes.
The German Association of the Automotive Industry (VDA), on the other hand, is not at all enthusiastic about Huitema’s tightened targets. They are counterproductive for the planning security of the industry, a VDA spokesman told Europe.Table: “Tightening targets without taking into account framework conditions, plannability, and instruments does not do justice to the challenges of the transformation. The great pressure on automotive suppliers to adapt and the necessary development of battery production are only “insufficiently addressed” in Jan Huitema’s report. It is not clear that the EU can create the necessary conditions and framework – including the expansion of the charging infrastructure – with the tightened targets. The proposed additional tightening of targets before and for the year 2030 is particularly problematic, the spokesman said.
On January 12th, the draft is to be discussed in the ENVI Committee. The committee vote will follow on May 11th.
A recent report by Goldman Sachs reached a surprising conclusion: Over the past eight years, financial markets have been increasing the cost of capital for big, long-term, high-carbon investments in sectors such as offshore oil and liquefied natural gas. But when it comes to renewable projects, the “hurdle rate” – the minimum rate of return required by investors – has been declining. The difference is significant, translating into an implied carbon price of about $80 per ton of carbon dioxide for new oil developments and $40 per ton of CO2 for LNG projects.
Capital markets seem finally to be internalizing the message that high-carbon investments should carry a significant risk premium. This insight has not emerged spontaneously. It is the result of many years of in-depth research, targeted analyses by groups like Carbon Tracker and the Institute for Energy Economics and Financial Analysis, pressure from investor alliances, hard-hitting NGO campaigns, and divestment decisions by foundations, churches, universities, and pension funds.
The shift in capital-market sentiment has been reinforced by political action. At last month’s United Nations Climate Change Conference (COP26) in Glasgow, nearly 40 countries and institutions pledged to end public finance for oil, gas, and coal projects overseas. In addition, Denmark and Costa Rica spearheaded a group of 12 countries and regions that launched the Beyond Oil and Gas Alliance.
These efforts, though still partial in their coverage and insufficient, are to be welcomed as a sign that financial flows are now starting to align with the goals of the 2015 Paris climate agreement, as mandated by article 2.1(c) of that treaty. But the implicit carbon price demanded by capital markets so far covers only the supply side: the oil, gas, and coal fields, refineries, and transport infrastructure that feed fossil fuels into the global economy.
Unfortunately, similar progress on the demand side for coal, oil, and gas has been lacking. Despite much talk of green recoveries from the COVID-19 shock, huge government stimulus programs have largely failed to discriminate between green and dirty economic activity, and have thus stabilized the global economy on the old growth path.
Moreover, these interventions have created significant consumer demand as the economy bounces back. Movement profiles point to renewed car use and air travel, while energy-intensive industries like cement, steel, plastics, and chemicals are again fueling demand for electricity, gas, and coal. Significantly, China’s economic stimulus has focused far too much on the highly carbon-intensive building sector, instead of undertaking the long overdue reorientation of the country’s growth model in line with its climate goals.
The current surge in fossil-fuel energy prices reflects a multitude of highly idiosyncratic factors. But today’s situation may well presage a future in which a misalignment of supply- and demand-side climate policies generates significant price swings.
Hydrocarbon lobbyists have been quick to exploit the recent uptick in fossil-fuel energy prices to advocate for renewed government financing and subsidies, as well as favorable regulatory treatment for their clients’ investments. In essence, they are calling for the public sector to step in to help fossil-fuel producers at a time when private capital is quite rightly shying away from climate risk and slowly withdrawing from the sector.
Efforts to ease the energy crunch can and must be aligned with solving the climate crisis. Each well-insulated house, wind park, and solar panel reduces the strain on gas supplies. Making cities attractive for cycling and walking, and upgrading public transport, is not only good for public health and safety; it is also an investment in weaning ourselves off the oil that is straining our purses and killing our planet.
Similarly, reducing demand for single-use plastic packaging will further decrease demand for the fossil-fuel feedstocks of petrochemicals. And innovations like flying taxis, supersonic air travel, and space travel that benefit only the super-rich and create new, wasteful energy demand could easily be restricted or even banned before they are widely adopted.
Instead of loosening supply-side carbon policies, as some short-sighted voices advocate, we must – even in periods of high energy prices – keep our eye on the main goal. That means focusing on the inevitable, well-managed decline of coal, oil, and gas and their substitution by sustainable clean energy. In the short term, the best remedies for high energy prices are demand-reducing measures, like the lower highway speed limits that some Western governments instituted following the 1970s oil-price shock.
In short, a just transition away from fossil fuels requires us to “cut with both arms of the scissors.” As the UN Environment Programme emphasized in two pre-COP26 reports, that means simultaneously closing the huge gaps in climate action on both the demand and the supply side.
Despite the much-needed progress toward pricing high-carbon investments appropriately, these gaps are still far too big. Only by closing them quickly and in parallel can we stave off catastrophic climate disruption, and avert the economic disaster that could result from massive energy-price swings and extensive stranded fossil-fuel assets.
In cooperation with Project Syndicate, 2021.
Tomorrow is the day: The first EU summit without Angela Merkel and with Olaf Scholz is on the agenda. One thing is clear: The chancellor will be under special scrutiny in Brussels because some of the new German government’s plans have irritated neighboring states – most recently, the further development of the EU into a “federal European state”. Till Hoppe has the details on how Scholz is likely to react to the three most prominent issues at the summit – energy prices, taxonomy, and the Ukraine crisis.
After the European Commission already presented its proposals for the transport sector’s modernization yesterday – read more in the news – the revision of the gas market regulations is to follow today. With a new legal framework for hydrogen and other “low-carbon gases”, the institution wants to bring the European gas network in line with the Green Deal targets. Timo Landenberger explains why environmentalists are convinced that this will not succeed and where the points of contention lie.
In the European Parliament, Dutch Renew MEP Jan Huitema has presented his draft report on the revision of the CO2 fleet limits for passenger cars. The negotiations in the ENVI Committee are due to start next week. The reactions of the other political camps show that the search for a majority compromise will not be easy. Huitema wants to tighten the CO2 reduction targets for new cars, Jens Gieseke of the EPP calls this “out of touch with reality”. Lukas Scheid analyzes the draft and highlights the lines of conflict.
Olaf Scholz and Mark Rutte have already spoken to each other on Monday during the new chancellor’s inaugural telephone call. Today, Wednesday, Scholz will have the opportunity to talk to his Dutch colleague in person and congratulate him on the successful formation of a government, following the latter’s nine months of coalition talks. Then the youngest and longest-serving heads of government in the EU will meet in Brussels: First at a summit with the states of the Eastern Partnership, then on Thursday for a regular European Council.
It is Scholz’s first appearance in the circle of EU heads of state and government. Interest in the new German chancellor after 16 years of Angela Merkel is likely to be high. This is also because some of the plans of the traffic light coalition partners have caused irritation elsewhere. The plea in the coalition agreement for further development of the EU into a “federal European state” caused questions not only during Scholz’s inaugural visit to Poland but also in the Netherlands. Voters there rejected the planned European constitution in a referendum in 2005, and further steps towards integration are still difficult to communicate.
How much Scholz differs from his predecessor in his appearance at his premiere remains to be seen. As far as the German positions are concerned, that much is foreseeable, little will change for the time being. The summit was largely prepared by the tried and tested team. Jörg Kukies, the new Secretary of State for Economic and European Affairs in the Chancellor’s Office, only received his certificate of appointment yesterday morning. The new foreign policy advisor Jens Plötner is also fresh in office.
In the discussion about the high energy prices, foreseeably one of the main topics of the summit, the German government is standing by its well-known position: Market interventions are “currently not considered necessary”, according to government circles in Berlin. The current high gas prices had a fundamental reason: worldwide increased demand and limited supply. Investigations by the European supervisory authorities Acer and ESMA had not revealed any indications of manipulation on the electricity markets or in the European Emissions Trading System. The Russian natural gas suppliers had also fulfilled all contractual agreements.
Several other governments, however, do not want to simply accept the sharp price increases. France and around ten other member states see structural causes for the high prices and are calling for corresponding changes, for example, to the European electricity market design. A good two weeks ago, Paris submitted concrete proposals aimed primarily at easing the burden on end customers.
In October, the heads of state and government had already discussed the issue once without bridging the differences between the two camps. The second discussion on Thursday is unlikely to be much more productive. The draft conclusions mandate the EU Commission to “deepen the analysis of the functioning of electricity markets and the monitoring of trade under the EU ETS and to take appropriate follow-up action”. It also said it wanted to monitor the situation and “revisit this matter if necessary”. However, with the end of the heating season in Europe, most experts believe that prices will fall again.
This should also ease inflation, which is currently causing problems in several member states. At least that’s the assumption of ECB chief Christine Lagarde, who will inform the summit participants directly after the Governing Council meeting. But doubts are also spreading among governments that the high inflation rates are as temporary as initially assumed.
On the fringes of the summit, it is also likely to be discussed how nuclear power and natural gas should be classified in the EU taxonomy for sustainable economic activities. It is not officially confirmed in Berlin government circles that the topic is likely to be discussed bilaterally, but according to Berlin, Scholz and Co are currently trying to defuse the ideologically charged dispute “in very intensive talks” with Paris, other EU partners and the EU Commission.
France is pushing for the Commission to present the corresponding delegated act before the end of the year, including a green label for nuclear power. The national energy mix is a matter for the individual member states, the Élysée Palace says, “and we hope that Germany will not question our decision in favor of nuclear energy“. Commission President Ursula von der Leyen has so far planned to present the legislation on December 22nd. However, the date could well move into the new year if the negotiations drag on – because von der Leyen would like to avoid upsetting Berlin or Paris.
Scholz is also maintaining continuity on another contentious European issue: Nord Stream 2. The SPD politician wants to keep the topic out of the discussion on how the EU should react to the deployment of Russian troops on the border with Ukraine. Any aggression by Moscow would have “very serious political and economic consequences” , according to German government circles. However, Nord Stream 2 is explicitly not included in this. The pipeline project of the Russian Gazprom Group is currently undergoing an ordinary approval process – which has been suspended anyway – so there is no need for a political decision.
The heads of state and government are likely to leave it at the summit with strong words directed at Moscow: “Any further military aggression against Ukraine will have massive consequences and considerable costs,” reads the draft of the summit declaration. However, they do not want to be more specific at the moment – according to diplomats, no sanctions are planned at the moment.
With a new version of the Gas Market Directive and the Network Access Regulation, the EU Commission wants to align the European gas market with the goals of the Green Deal, guarantee supply security, and reduce import dependency. Brussels authority will officially present its plans today. However, the drafts have already been circulating for several days and are causing controversy.
With the gas package, the Commission wants to pave the way for a more climate-friendly energy supply, for example by giving low-carbon gases a better position in the grids. To this end, the drafts provide for the introduction of an EU-wide certification system (Europe.Table reported). This will allow member states to compare different decarbonization options and consider them as viable solutions in their energy mix. The focus of the classification as low carbon fuels is on blue hydrogen. This is produced from natural gas, but the resulting carbon dioxide is captured from the air and stored (carbon capture and storage, CCS).
Markus Pieper, energy policy spokesman for the CDU/CSU in the EU Parliament, welcomes the Commission proposal. The fact that the authority wants to allow low-carbon solutions such as blue hydrogen is a good sign, the MEP told Europe.Table. Especially for the transition period until sufficient renewable energies are available, the use of natural gas-based technologies is indispensable. This applies in particular to Germany, which wants to phase out coal and nuclear energy at the same time. In addition, it is necessary to generate a market ramp-up for hydrogen as quickly as possible, for which sufficient hydrogen must be available. This can only be guaranteed if the various colors of hydrogen are used.
The Environmental Action Germany (DUH), on the other hand, sharply criticizes the package. It neither provides for a phase-out of natural gas nor for climate-friendly hydrogen infrastructure and therefore contradicts the EU climate targets. DUH managing director Sascha Müller-Kraenner calls the proposals an “early Christmas present to the gas industry”. For Michael Bloss, climate policy spokesman for the Greens in the EU Parliament, too, the “hype about gas is immensely dangerous”. The Commission’s proposals would prolong the fossil fuel era and create incentives for bad investments.
The MEP criticizes the Commission’s plan to allow the blending of hydrogen into the existing natural gas grid. What sounds like a sensible contribution to climate protection – after all, by feeding hydrogen into the distribution networks, low-carbon energy is made available everywhere – has environmentalists up in arms. Müller-Kraenner also criticizes that the limited amount of available “hydrogen is wasted for heating buildings, although there are cheap alternatives like heat pumps. This does almost nothing for climate protection”.
According to a study by the think tank Agora Energiewende, a blending of up to 20 percent is possible without requiring a fundamental overhaul of the gas network and household appliances. But that would be far too little to meet the EU’s climate targets, would only reduce emissions by seven percent, and would cause a huge increase in the price of gas. Not least because the gas industry can pass on the additional costs to consumers.
Müller-Kraenner calls it “downright paradoxical that household customers should also pay for the hydrogen networks, although they get nothing out of it except high costs.” DUH, therefore, calls for the development of a separate and decentralized infrastructure for green hydrogen in order to decarbonize specifically those sectors for which electrification is not possible.
The German Association of Energy and Water Industries (BDEW) rejects a concentration of the application on industry and welcomes the Commission’s step: “Only an approach that is as broad as possible guarantees a comprehensive market ramp-up, steadily growing contributions to the achievement of climate protection targets and the future viability of the gas infrastructure. Therefore, the heating sector must finally be fully recognized as a field of application for hydrogen,” says a BDEW spokesperson to Europe.Table.
Michael Bloss, on the other hand, speaks of new fossil dependencies “that will cost us dearly in view of the exploding energy prices”. The EU’s gas suppliers could “rub their hands” and fill their coffers. With the new gas package, the EU Commission explicitly wants to tackle the problem of import dependency and high energy prices. The drafts provide for long-term natural gas import contracts not to be extended beyond 2049, which is likely to hit the main supplier, Russia, particularly hard.
Measures to strengthen the security of supply are also foreseen, including approaches to gas storage and to ensure the highest possible levels at the beginning of the heating seasons. In addition, the Commission had already announced its intention to allow joint strategic gas purchases on a voluntary basis and by regulated network operators as part of the package.
Rapporteurs in the EU Parliament’s committees often have an enormously thankless task. They prepare the ground for an agreement between the Commission and Parliament. In doing so, they have to evaluate, comment on and, if necessary, correct the Commission’s proposals in their own draft report. Subsequently, however, they are often caught in the crossfire of the shadow rapporteurs and their groups, for whom the report usually goes too far or not far enough.
This is the task that Dutch Renew politician Jan Huitema has taken on in the Committee on the Environment, Public Health and Food Safety (ENVI) for a proposal for a particularly explosive regulation. Huitema is a rapporteur in the lead ENVI committee for the revision of CO2 limits for cars and vans.
In summer, the Commission brought the new limit values into play as part of the Fit for 55 package. The proposal for the revised regulation is the Commission’s most important lever for putting a stop to the still rising greenhouse gas emissions in road traffic. From 2025, emissions from the new car fleet would have to be 15 percent lower than in 2021, the year of comparison. By 2030, emissions would have to be 55 percent lower for passenger cars and 50 percent lower for light commercial vehicles. From 2035, only zero-emission vehicles would be allowed to be registered.
Huitema has now proposed in his draft report to increase the interim targets and add others:
From 2025: Reduction by
From 2027: Reduction by
From 2030: Reduction by
He supports the Commission’s goal of allowing only zero-emission vehicles from 2035.
Huitema also proposes to eliminate specific incentives for manufacturers to sell zero-emission vehicles as early as 2025. The Commission wants manufacturers to reduce their CO2 emission reduction targets by up to five percent by 2030 via a crediting system if they sell so-called “zero and low emission vehicles” (ZLEV). This means that if a certain proportion of new car sales consist of e-cars (BEVs) or plug-in hybrids (PHEVs), manufacturers will have to reduce emissions from their new car fleet by less on average. Environmental organizations have criticized these incentives as counterproductive: They would weaken the effect of CO2 limits, as car manufacturers could get the ZLEV bonus and subsequently not have to reduce the emissions of their new cars as much.
Huitema shares this argument. The advantage, in his view, would be that the emissions of PHEVs would be included in the fleet limits, instead of their mere sales figures helping manufacturers to get a ZLEV bonus. Huitema also wants to revise how emissions from PHEVs are considered: The current calculation is “misleading” because it is not based on representative data but on an estimate of how much is driven in battery mode. Huitema calls for real driving behavior to be used as a basis in the future. Manufacturers would then be required to produce PHEVs with the lowest possible emissions.
With the draft report, Huitema has created the working basis for the ENVI Committee. Now the challenge begins, together with the shadow rapporteurs, to put together a report on the Commission’s proposal that is capable of gaining majority support. “A hard piece of work”, predicts Jens Gieseke of the EPP. He describes Huitema’s draft as “out of touch with reality”. With sharp interim targets, Huitema ignores the “development and production cycles of manufacturers and pushes for a rapid combustion engine phase-out”, Gieseke told Europe.Table. He also criticizes both Huitema and the Commission for limiting their consideration of emissions to what is emitted from the exhaust pipe. Gieseke believes that the focus should rather be on the energy sources and demands that e-fuels should also play a role in a technology-neutral approach.
Bas Eickhout of the Greens stands on the opposite side of the opinion spectrum. For him, the proposal does not go far enough. A phase-out of internal combustion vehicles in 2035 does not fit in with the climate neutrality target for 2050, if one takes as a basis that almost half of the cars will remain on the road for longer than 15 years. In addition, several manufacturers are already aiming for an earlier phase-out. The regulation should therefore “support the pioneers and not reward the laggards”, Eickhout said. “We will therefore push for a clear zero emissions target for new cars and vans in 2030, with appropriate interim targets.”
Transport and Environment (T&E), the transport umbrella body, had called for a more realistic view of PHEV emissions, as well as an earlier end to ZLEV bonuses. Alex Keynes, clean vehicles manager at T&E, therefore welcomes Huitema’s draft report. However, he criticizes the draft for leaving the weight adjustment factor for the CO2 target untouched. This gives car manufacturers lower targets if they sell heavier vehicles, which promotes sales of emission-intensive SUVs and plug-in hybrids, says Keynes.
The German Association of the Automotive Industry (VDA), on the other hand, is not at all enthusiastic about Huitema’s tightened targets. They are counterproductive for the planning security of the industry, a VDA spokesman told Europe.Table: “Tightening targets without taking into account framework conditions, plannability, and instruments does not do justice to the challenges of the transformation. The great pressure on automotive suppliers to adapt and the necessary development of battery production are only “insufficiently addressed” in Jan Huitema’s report. It is not clear that the EU can create the necessary conditions and framework – including the expansion of the charging infrastructure – with the tightened targets. The proposed additional tightening of targets before and for the year 2030 is particularly problematic, the spokesman said.
On January 12th, the draft is to be discussed in the ENVI Committee. The committee vote will follow on May 11th.
A recent report by Goldman Sachs reached a surprising conclusion: Over the past eight years, financial markets have been increasing the cost of capital for big, long-term, high-carbon investments in sectors such as offshore oil and liquefied natural gas. But when it comes to renewable projects, the “hurdle rate” – the minimum rate of return required by investors – has been declining. The difference is significant, translating into an implied carbon price of about $80 per ton of carbon dioxide for new oil developments and $40 per ton of CO2 for LNG projects.
Capital markets seem finally to be internalizing the message that high-carbon investments should carry a significant risk premium. This insight has not emerged spontaneously. It is the result of many years of in-depth research, targeted analyses by groups like Carbon Tracker and the Institute for Energy Economics and Financial Analysis, pressure from investor alliances, hard-hitting NGO campaigns, and divestment decisions by foundations, churches, universities, and pension funds.
The shift in capital-market sentiment has been reinforced by political action. At last month’s United Nations Climate Change Conference (COP26) in Glasgow, nearly 40 countries and institutions pledged to end public finance for oil, gas, and coal projects overseas. In addition, Denmark and Costa Rica spearheaded a group of 12 countries and regions that launched the Beyond Oil and Gas Alliance.
These efforts, though still partial in their coverage and insufficient, are to be welcomed as a sign that financial flows are now starting to align with the goals of the 2015 Paris climate agreement, as mandated by article 2.1(c) of that treaty. But the implicit carbon price demanded by capital markets so far covers only the supply side: the oil, gas, and coal fields, refineries, and transport infrastructure that feed fossil fuels into the global economy.
Unfortunately, similar progress on the demand side for coal, oil, and gas has been lacking. Despite much talk of green recoveries from the COVID-19 shock, huge government stimulus programs have largely failed to discriminate between green and dirty economic activity, and have thus stabilized the global economy on the old growth path.
Moreover, these interventions have created significant consumer demand as the economy bounces back. Movement profiles point to renewed car use and air travel, while energy-intensive industries like cement, steel, plastics, and chemicals are again fueling demand for electricity, gas, and coal. Significantly, China’s economic stimulus has focused far too much on the highly carbon-intensive building sector, instead of undertaking the long overdue reorientation of the country’s growth model in line with its climate goals.
The current surge in fossil-fuel energy prices reflects a multitude of highly idiosyncratic factors. But today’s situation may well presage a future in which a misalignment of supply- and demand-side climate policies generates significant price swings.
Hydrocarbon lobbyists have been quick to exploit the recent uptick in fossil-fuel energy prices to advocate for renewed government financing and subsidies, as well as favorable regulatory treatment for their clients’ investments. In essence, they are calling for the public sector to step in to help fossil-fuel producers at a time when private capital is quite rightly shying away from climate risk and slowly withdrawing from the sector.
Efforts to ease the energy crunch can and must be aligned with solving the climate crisis. Each well-insulated house, wind park, and solar panel reduces the strain on gas supplies. Making cities attractive for cycling and walking, and upgrading public transport, is not only good for public health and safety; it is also an investment in weaning ourselves off the oil that is straining our purses and killing our planet.
Similarly, reducing demand for single-use plastic packaging will further decrease demand for the fossil-fuel feedstocks of petrochemicals. And innovations like flying taxis, supersonic air travel, and space travel that benefit only the super-rich and create new, wasteful energy demand could easily be restricted or even banned before they are widely adopted.
Instead of loosening supply-side carbon policies, as some short-sighted voices advocate, we must – even in periods of high energy prices – keep our eye on the main goal. That means focusing on the inevitable, well-managed decline of coal, oil, and gas and their substitution by sustainable clean energy. In the short term, the best remedies for high energy prices are demand-reducing measures, like the lower highway speed limits that some Western governments instituted following the 1970s oil-price shock.
In short, a just transition away from fossil fuels requires us to “cut with both arms of the scissors.” As the UN Environment Programme emphasized in two pre-COP26 reports, that means simultaneously closing the huge gaps in climate action on both the demand and the supply side.
Despite the much-needed progress toward pricing high-carbon investments appropriately, these gaps are still far too big. Only by closing them quickly and in parallel can we stave off catastrophic climate disruption, and avert the economic disaster that could result from massive energy-price swings and extensive stranded fossil-fuel assets.
In cooperation with Project Syndicate, 2021.
