The Gas crisis: a wakeup call that energy transition policy needs to be more just
If you’re an EU citizen, you – like me – will probably have felt a lump in your throat when you received your last electricity bill, or the notification from your electricity provider that your upfront payments will significantly increase due to the electricity crisis. Energy prices have been soaring all across Europe over the last few months, forcing households to tighten their budgets. For some of us, this represents somewhat of an significant inconvenience – for others, it means not being able to pay our electricity bills, or going into debt.
Where are we and how did we get here?
A slew of factors have put us here, but primarily the shortfall in gas has driven prices sky high. Because electricity prices on the market are set based on the most expensive source of electricity, high gas prices are making electricity markets go haywire
This highlights just how vulnerable our reliance on imported fossil fuels makes us. Europe’s countries are highly dependent on fossil fuel exporters for their energy supply (gas makes up 32% of household final energy consumption, and the EU relies on imports for 96% and 89% of its crude oil and natural gas supply respectively). Such reliance makes us vulnerable to electricity price fluctuations.
An effective way to avoid being exposed to such volatilities would be for the EU to produce its own renewable energy. Investment in projects generates profit and dividends, and allows us greater decision making autonomy (including on electricity prices). However, investments in renewables are currently too low to meet our energy needs. Until we are independent from the smelly stuff, there will be more energy crises.
A failure by Europe’s governments to protect their citizens?
The practical impact of all this is that citizens and businesses are suffering. Many large industries are less affected by the current crisis, as they have shielded themselves from volatilities on the energy market by securing cheap energy. However, consumers go through the energy market and are exposed to price volatility and speculation.
Many energy suppliers have gone bust, forced to buy electricity on the market and sell it at a loss to their customers. In turn, their customers are forced to new suppliers with much higher rates. Lots of other energy suppliers are now asking customers to compensate for higher electricity prices by raising their monthly bills. The result: financial burden on Europe’s households.
Consumers most affected by the current crisis are low-income households, although a segment of the middle class also find themselves highly affected. As autumn turns to winter, many will face a Catch 22: Go broke or go cold.
Energy is not only an essential and strategic sector for the economy, but also for human dignity. Lack of energy access causes social exclusion and significant health risks, thus increasing social inequalities.
What needs to change…
Naturally, governments have responded to this crisis. To address the immediate impacts of the crisis, the European Commission has released a toolbox of measures Member States can take, including emergency income support, avoiding disconnections, reducing taxes or shifting financing of renewables away from levies, the use of state aid, and facilitating wider access to renewables power purchase agreements.
These and other short-term measures are fine and good. The EU and national governments have a duty to safeguard energy as a basic human need. However, the EU also needs a step-change in its approach to policy making.
Until now the Commission’s approach to social impacts of climate policy has been more reactionary than proactive. The Just Energy Transition Fund was proposed as a response to calls from regions whose economies are suffering. France’s Yellow Vest Movement was triggered because of an increase in the price of automotive fuels resulting from a higher domestic consumption tax on energy products. The Social Climate Fund was created as a band-aid response to negative impacts of expanding the Emission Trading System to the buildings and transport sector. Such an approach is ultimately flawed and will likely lead to lack of support, and distrust, by citizens towards decision makers.
On the 14th of December, the Commission will propose guidance to Member States on how to best address social and labor aspects of the green transition to ensure its fairness. This represents a significant opportunity for the Commission to change step, while presenting its vision for how Europe can approach potential distributional impacts of the energy transition.
Putting gas in its place
Europe needs to properly define the relationship it will have with gas throughout the energy transition. First, it needs to move away from the newspeak that has become prevalent in Brussels. ‘Natural’ gas should be called what it is: ‘fossil’ gas, and this cannot be considered ‘green’. Hydrogen made from fossil gas is ‘fossil’ hydrogen, not ‘blue’.
Decarbonisation of gas supply through promotion of bio-methane has potential, but this strategy must be undertaken carefully. First, it needs to come along with a strong emphasis on moving citizens away from gas, prioritizing vulnerable social groups, through electrification and renewable heating. It should also not come at the expense of the energy efficiency first principle. Most importantly, the promotion of bio-methane should not be used to greenwash existing fossil fuel supply or be used as an excuse to prolong decommissioning of gas infrastructure at customer expense.
Shielding vulnerable social groups from the impacts of the energy transition
A just and renewable energy transition cannot be achieved if the most vulnerable keep falling victim to regressive policy measures. We should be designing policies with the objective of protecting vulnerable social groups from negative impacts. Climate and energy policy should prioritise options that avoid distributional effects on citizens and workers over ones that require mitigation.
On the other hand, we need to reconsider where we send the bill for the energy transition. At the moment, household and SME consumers largely pick up the bill for the energy transition compared to larger industry. It would also help if industry were required to contribute more fairly to national renewables support schemes, which are mostly paid for by citizens through their energy bills or taxes.
Empowering citizens building out renewables and energy efficiency
If one thing is clear from this crisis, it is time to double down on growing production capacity of renewable energy from the sun and wind. This is where citizens and local communities come in. Europe’s citizens are largely in favour of renewable energy, and many local communities are keen to invest in renewable energy projects. According to a recent YouGov poll conducted in 10 countries, 61% of those surveyed said they would be likely to join an energy cooperative if one were set up in their area.
Local communities must be given the means to own their own renewable energy generation, not just as a tool for driving local social innovation, but as a means to secure clean energy supply for future crises.
Due to a higher level of engagement by the local citizens with the topic of energy (for instance through outreach and education), energy communities trigger change in behaviour resulting in energy savings (including through home renovations), and the trust built within an energy community empowers citizens to increasingly participate in flexibility and storage solutions. According to a New Economic Foundation report in the UK, a £10bn investment in home energy retrofits through green stimulus would pay for itself in 7 years from health cost savings alone.
Supporting energy communities around inclusiveness
No citizen should be locked-in or left behind in an outdated energy system. Vulnerable groups should be targeted and prioritized, so that they can enjoy in the benefits of the energy transition. Here, local authorities and community initiatives have a strong role to play. A growing number of energy communities also focus on engaging vulnerable households, creating energy solidarity mechanisms between members, and addressing energy poverty. Currently, there is an untapped potential to use energy communities as tools to make the energy transition more inclusive.
All of this will not happen by itself. Member States need to fulfil their legal commitments to put in place enabling frameworks to promote the development of renewable energy communities, and to adapt renewables support schemes so that communities can access them. Moreover, the EU and Member states need to put in place supportive policies and measures to help energy communities become more active around energy efficiency and inclusiveness. If we want to leave one behind in the Energy Transition, we must put citizens at the heart.