Ending fossil fuel subsidies in Europe Newsletter No. 14 - February 2018
- Category: Blogs
- Published: 14 February 2018
A monthly update on policy development, campaigning and communications
One more subsidy scheme for Turkey's fossil fuel sector as capacity mechanisms introduced
(C) Kerem Yücel
In November 2017, the head of Turkey’s Energy Market Regulatory Authority (EMRA) announced that capacity mechanisms would be introduced specifically for electricity producers running on natural gas and local coal due to oversupply in the Turkish electricity market. The need for capacity mechanisms was justified as “local coal and natural gas power stations hesitating to operate due to high operation costs on top of low electricity prices in the market”. The announcement referenced the EU’s current capacity mechanisms scheme - without addressing this scheme's problems of oversupply, distorting effects on the market, or the European Commission’s ongoing negotiations to introduce an emissions performance criterion for capacity mechanisms that would eliminate coal.
The new capacity mechanism regulation, published on 20 Jan, excludes “power stations that have benefited from Renewable Energy Resources Support Mechanism.” The capacity mechanism scheme is effectively designed for fossil fuel power stations. As one reads this newsletter, on the 15th of February, Turkish grid operator TEİAŞ will have announced the power stations that will benefit, and the price of capacity payments per unit of electricity production. However, mainstream media outlets have already announced that 30 power stations, with a total capacity of 21 GW - 11GW of natural gas, 6GW of local coal, 3GW of imported new coal- have applied to benefit from the mechanism. The price of capacity payments will be determined annually according to the cost of specific fuel and efficiency ratios.
One major issue here for local coal is that capacity mechanisms are not the only subsidy scheme these stations benefit from. They already benefit from generous regional subsidies including tax exemptions, on top of the fixed purchase price guarantees agreed in 2016: the Turkish state has set the price of electricity generated from local coal to about 5 Euro cents per kWh (186TRY/mWh) and committed to purchase 6 billion kWh of electricity from the private companies operating local coal fired power stations. t is hard to speak about a liberal electricity market where coal gets supported by numerous different subsidy schemes.
Another issue is that despite the Turkish state openly announcing their support for local and national energy sources, natural gas plants and imported new coal plants are eligible to benefit from the new capacity mechanisms, in an oversupplied electricity market.
Finally, these fossil fuel subsidies not only demonstrate Turkey’s lack of will to remain on the path to meeting the Paris Agreement and shift to low-carbon development, but will also potentially increase the cost of electricity for consumers - as is expected in Poland.
MEPs shed light on gas risk in Projects of Common Interest list
© PLATTS for the underlying grids for electricity, gas and oil, 2017 © European Union, 2017
This month 17 MEPs from five political groups raised an objection to the European Commission’s Projects of Common Interest (PCI) list in energy (ITRE) committee. As well as receiving priority status at national level, accelerated permits and streamlined environmental impact assessments, these projects can apply for preferential funding from the EU’s Connecting Europe Facility fund. Now for the first time ever, because of the objection, MEPs in the committee will have to vote on the list rather than letting it pass automatically into approval.
So why have these MEPs opposed the list? The Commission’s own criteria are that projects should improve market integration between member states, increase energy diversity and security, and “contribute to the EU's climate and energy goals by integrating renewables.” But delving into the current projects reveals over 90 gas infrastructure projects, including a number of mega-pipelines and new liquid natural gas (LNG) terminals. As shown in the recent report ‘Natural Gas and Climate Change’, commissioned by Friends of the Earth Europe, the EU needs to phase out all fossil fuels including gas by 2035, in order to keep to its carbon budget under the Paris Agreement’s two degree global warming goal. Yet most gas projects on the list have 40-50 year life-spans: funding these projects means funding infrastructural lock-in to high carbon energy sources. As well as criticising the list’s impact on our emissions reductions efforts, MEPs also highlight concerns over the Commission’s transparency and methodology in selecting projects, including overestimations on gas demand, which risk leading us down a path of overcapacity, idle installations, higher energy bills and poor industrial competitiveness.
This objection comes at an important moment. The Commission is setting out its proposals for the post-2020 EU budget (or Multiannual Financial Framework (MFF)) on 29 May. If the European Union is to stand a chance of delivering on its Paris Agreement commitments it must step up its climate action over the coming decade. The budget can be used to fill the climate ambition gap for 2030, by supporting low carbon solutions and long term decarbonisation. Indeed Commissioner Cañete has stated that the EU budget must “not finance actions that are incompatible with our ambitions in terms of climate policy and clean energy transition."
The EU can start by setting climate proof investment conditions on its spending. PCI projects may receive up to 50% of their funding from the Connecting Europe Facility, one of the EU budget’s funding instruments, but must leverage the rest from private investment. If Commissioner Cañete and the EU are serious about demonstrating international climate leadership, the next EU budget needs to shift financial flows and public and private investment out of high carbon, high risk infrastructure - it needs to stop funding gas projects.
The Parliament’s energy committee will vote on the objection to the PCI list on 21 February. While there is little chance of the objection being upheld, progressive MEPs can use the committee vote as an opportunity to set the tone for the upcoming negotiations on post-2020 public spending, and let the Commission know that there is no place for gas in the next EU budget.
You can take action by emailing energy MEPs using Food and Water Europe’s email tool.
Commission gives go ahead to Poland’s massive coal subsidies
Contrary to its own proposal to curb power subsidies with an emissions limit, the European Commission has approved the Polish capacity mechanism, allowing the country to subsidise coal-fired power plants for decades to come. Joanna Flisowska, Coal Policy coordinator at CAN Europe criticised the inconsistency of this decision with the Paris Agreement. “It is a huge sell-out to the Polish coal industry at the expense of Polish taxpayers and the climate. It is vitally important that the EU corrects this mistake and ensures that the biggest polluters are precluded from receiving public money in the ongoing negotiations of the Clean Energy Package.” CAN Europe urges the European Parliament to ensure consistency in Europe's climate and energy policies and a full phase-out of fossil fuel subsidies, when it adopts a position on the Market Design Regulation. Read more here.
European Parliament adopts provisions on fossil fuel subsidy phase-out in Governance Regulation position
Two measures on fossil fuel subsidy phase-out have been included in the European Parliament’s position on the Governance Regulation. Firstly, the position cites that the State of the Energy Union report shall contain Member States' progress towards phasing out direct and indirect fossil fuel subsidies by 2020.
Secondly, EU Member States should also be required to include plans for national policies, timelines and measures to phase out indirect and indirect fossil fuel subsidies by 2020 in their National Energy and Climate Plans (NECPs). The Regulation will now enter trialogue negotiations with the Council and the Commission. You can read CAN Europe’s reaction to the European Parliament’s position on key Clean Energy Package files here.
Euractiv (EU): Brussels muddies waters on state aid for coal power. “Capacity mechanisms can help to safeguard security of electricity supply, but they must be designed so as to avoid distortions of competition in energy markets,” said Margrethe Vestager, the Danish Commissioner in charge of competition policy.”
EU Observer: EU to pump €101m into Cyprus gas network. "The European Union is going to pump €101m into a project aimed at hooking Cyprus up to natural gas, as part of the so-called Southern Gas Corridor, it announced on Thursday (25 January).”
Euractiv (EU): EU’s energy project list denounced by unimpressed MEPs. "Two months ago, the Commission presented its projects of common interest (PCI) list, which includes energy infrastructure projects like electricity interconnectors and gas pipelines, meant to help the EU meet its energy and climate objectives.”
Climate Change - The new economy (UK): To finance the energy transition, EU leaders must restore their ambition. “The Energy Council once again missed a vital opportunity to provide investors with the clarity and the confidence they need from regulators to shift the trillions required to finance the low-carbon energy transition.”
EU Observer: Juncker pushes for bigger post-Brexit EU budget. “European Commission president Jean-Claude Juncker called on Monday (8 January) for the EU-27 to pay more money into the bloc's joint long-term budget, after the UK leaves a gap in the common finances following Brexit.”
BLOGS, LETTERS, POSITION PAPERS & BRIEFs
Nature. International Journal of Science: Limited emission reductions from fuel subsidy removal except in energy-exporting regions
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