Over Europe’s climate change plans, geopolitical clouds gather

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BRUSSELS — Soaring energy prices and a geopolitical crisis over Russia’s invasion of Ukraine are looming over the European Union’s attempts to agree a raft of tougher climate change laws, raising concerns that some could be delayed or scaled back.

In the weeks after the European Commission unveiled the world’s biggest package of green policies last July, wildfires ripped through the Mediterranean and floods ravaged western Europe. Governments from Greece to Germany called for urgent climate change action.

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Seven months later, EU policymakers are still negotiating how to make those proposals binding laws. However, the political context is very different.

Europeans’ energy bills are soaring. Gas prices ended Thursday 300% higher than in July, pushed upwards as the invasion of Ukraine by Russia, Europe’s top gas supplier, sharpened concerns of energy supply shocks. The EU carbon prices are at an all-time high. Inflation in the Eurozone is at an all time high.

Brussels has billed Europe’s green transition as its escape route from reliance on Russian energy and the 300 billion euros EU countries spend on oil and gas imports each year. It will require massive investments upfront, but it will ultimately lower costs and give European industry an advantage in global green technology.

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However, immediate concerns about costs are dominating negotiations between EU countries on the climate proposals and the European Parliament. Both must approve the laws.

While soaring gas prices are the main driver of recent increases in energy bills, a growing number of states – especially from the bloc’s poorer east – warn of public pushback if ambitious green goals hike costs in future.

“We used to be a fairly sizable group of countries arguing for more ambition. We’re not a huge number left,” one EU diplomat said.

CARBON MARKETS

The EU proposals are designed to deliver the bloc’s target to cut emissions 55% by 2030, from 1990 levels, putting the world’s third-biggest economy on a path that, if followed globally, could avoid global warming’s worst impacts.

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They include a ban on new petrol or diesel cars by 2035, taxes on polluting jetfuel and carbon border tariffs for imports of high-carbon goods.

The controversial new emissions trading system (ETS), is especially controversial. That would introduce carbon costs for transport and buildings – costs that fuel suppliers may pass on to consumers through higher bills.

“What is the cost and who will pay? We are warning that if we don’t discuss this we will lose popular support for the whole project,” said a senior diplomat from one EU country.

The Commission suggested using revenues from this new market to protect low-income households from these costs. Critics warn that there could be a political backlash.

Pascal Canfin, chair of the European Parliament’s environment committee, said the ETS proposal was so contentious it could “freeze the whole package” of climate laws.

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Groups representing more than 200 of the EU assembly’s 705 lawmakers this month proposed amendments to scrap the new ETS, according to documents seen by Reuters.

Soaring energy costs are also looming over reforms of the EU’s existing carbon market, which forces power plants and industry to buy permits when they emit CO2.

CO2 permit prices soared by 150% last year and are now trading around 90 euros per tonne – a near-record level that analysts say could incentivise key green industrial technologies such as CO2 capture facilities.

However, as CO2 prices have risen, so have the calls for intervention to reduce price spikes.

Parliament’s lead negotiator this month proposed rules making it easier for policymakers to release more permits into the ETS if prices rise rapidly. Although countries like Romania, Spain, Poland and Spain support the idea, others warn against undermining prices for low-carbon investments.

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“Any intervention on pricing is undesirable,” one EU diplomat said.

BALANCING Act

The European Parliament, EU countries, and others, plan to confirm their positions regarding the largest proposals, including the carbon markets, by July. The Commission has urged negotiators to strike deals before a U.N. climate summit in November, strengthening the EU’s diplomatic hand to convince other countries to improve their plans.

Officials from the EU expect some talks to spill over into 2023. EU leaders may escalate contentious proposals to them, raising the bar for approval when they make decisions unanimously.

The challenge is to ensure that the final package will still deliver the EU’s legally-binding emissions targets.

“Everybody’s saying the targets are too high and too binding. The problem is that if you add all of those concerns, you are going to miss your 2030 target,” said Lucie Mattera, head of think tank E3G’s Brussels office.

Bas Eickhout, a Green lawmaker, said he was optimistic that some plans could be made more ambitious such as proposals to increase renewable energy and tighten CO2 limits on cars.

“The member states on each file are becoming a bit more careful,” Eickhout said. “Well, they promised the 55% so they will have to deliver.” (Reporting by Kate Abnett; additional reporting by John Chalmers; editing by John Chalmers and Alex Richardson)