In addition to the price of electricity for homes, the European Green Deal is at risk

Sep 15, 2021

Redacción Mapfre

Redacción Mapfre

Last week, Germany’s Cal 2022 baseload power contract, the European benchmark, hit a new record high of €97.25 ($114.50) per megawatt hour, almost double the reference price for this year (like in Spain).

This sharp rise in prices has led to protests in the EU, forcing governments to temporarily suspend their taxation of electricity. This energy crisis is due to a convergence of factors, such as decreasing natural gas production in Europe, the increasing cost of carbon emissions, and a drop in production of renewable energies caused by lower levels of wind and hydraulic reserves.

Energy experts are warning that prices are likely to continue rising even as the winter months are approaching. Moreover, this rise in energy prices is taking place in the context of social and economic unrest caused by COVID‑19, which could lead to an even more tense environment and add one more subject to the list of those generating protests across the continent this year.

Record energy prices throughout Europe could increase opposition to the European Union’s ambitious climate objectives and undermine the EU’s “Fit for 55” climate package, which has already been a source of debate in the European Parliament (EP) for the last several weeks.

On July 15, the European Commission launched its Fit for 55 legislative agenda, which is related to the European Green Deal. It fundamentally consists of strengthening the EU’s Emissions Trading System (ETS), combined with progressive elimination of free allowances and introduction of a Carbon Border Adjustment Mechanism (CBAM).

Some sources are claiming that these changes are likely to expose European industry to rising cost pressures at a time when capital is needed for investing in emerging industrial processes with low carbon emissions. A growing number of voices are also arguing that Fit for 55 is damaging the EU’s industrial competitiveness.

Because of this, industrial leaders from the EU, in particular those from industries covered by the CBAM, will be applying strong pressure to at least extend the period of free allocation of carbon emission rights. They will also be expressing their opposition to the CBAM, while advocating for strict application mechanisms if it is ultimately implemented. At the same time, they will be wanting more secure guarantees that EU funds will be available for investing in decarbonization, as a way of alleviating the enormous burden they foresee for the future.

The EU’s climate legislation runs the risk of undermining the competitiveness of European industry by increasing production costs. However, concerns are also growing in relation to the short term, where the social impact of the green transition is threatening to expand opposition—by MEPs, European Commissioners, and EU Member State governments—to application of the current version of the European Commission’s Fit for 55 climate package.

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