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Letter from Brussels: National realpolitik may water down EU climate policy

The EU is staking out a clear path towards climate neutrality, pursuant to its green deal. But national implementation in the decade ahead may fall short

The European Commission appears to have broad political support for its flagship climate policy. But it may lose steam when EU member states face translating policy into concrete action, with national governments keen to protect domestic industries and consumers while the economic consequences of Covid-19 continue to resonate.

In October, the Commission presented the fifth edition of its State of the Energy Union report. This year’s publication boasts of progress on EU energy market integration, with a significantly more liquid European gas market—trading volumes on EU gas hubs saw an impressive 32pc year-on-year growth in the first quarter of the year alone. And it identifies "a clear need to step up efforts to reduce subsidies from wasteful energy consumption and to promote the energy transition".

Calls to remove fossil fuel subsidies, during what may be a prolonged economic downturn, seem likely to fall on deaf ears

It is the first time the Commission has specifically addressed energy subsidies in this report, estimating that EU fossil fuel subsidies amounted to nearly one-third—or €50bn ($59bn)—of the €159bn in member states' 2018 energy subsidies. But calls to remove fossil fuel subsidies during what may be a prolonged economic downturn may fall on deaf ears in national capitals. A huge 80pc of fossil fuel subsidies in 2018 went to the energy, industry and transport sectors.

And the Commission’s recent evaluation of member states' national energy and climate plans (NECPs) sees national policies still lagging behind EU ambitions. "Each member state has still some work to do" says Kadri Simson, EU energy commissioner. According to the energy union report, only three member states provided “comprehensive” details on fossil fuel subsidies in their NECPs, while six provided timelines for potential phase-outs.

Fossil fuel subsidies in the EU have remained stable over the past decade, and the Commission anticipates additional energy subsidies this year, "including those for fossil fuels", due to the Covid-19 pandemic. The Commission does, though, expect to see a structural shift in fuel subsidies, with a drop in support for coal, due in part to a continent-wide switch away from the fuel in 2019.

Energy efficiency first

While the state-of-the-union report shows the Commission clearly has grievances with member states' fossil fuel subsidies, it also singles out energy efficiency as instrumental in meeting the bloc's climate ambitions. Going forward, it will "anchor the ‘energy efficiency first’ principle in all relevant policy proposals".

Getting member states' political support for implementing energy efficiency measures, with potential for savings and scope to access EU funding, should be less contentious than removing subsidies. But efficiency gains alone will not be enough to meet a raised 2030 target.

According to the Commission's 2021 work programme, it plans to amend the energy efficiency directive, along with 11 other policy initiatives grouped in a "fit for 55 package". The package, scheduled to be presented in June next year, aims to prepare the EU for meeting a higher 2030 greenhouse gas emissions reduction target of at least 55pc below 1990 levels—up from the current 40pc target.

€50bn – Fossil fuel subsidies by EU member states in 2018

Commission president Ursula von der Leyen unveiled the new target, which is included in a proposed European climate law, at her state-of-the-union speech in September. But at the latest Environment Council meeting, member state minsters reached only partial agreement on the law—with the 2030 headline target particularly divisive—although there remains hope of a final agreement at the European Council in December.

Ahead of then, member states find themselves in a policy quandary. Agreeing to sign up to a more ambitious 2030 target will require, among other things, significant progress on phasing out fossil fuel subsidies. But it will also risk committing to removing potentially critical economic support to major end-users—and employers—while still in the teeth of a global downturn.

But, on the other hand, digging in for long drawn-out negotiations on the climate law and its 2030 emission reduction goal—with member states then potentially shooting for moving targets in their NECPs—is likely to add unwanted uncertainty for industry during what are already turbulent times.

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