May 8, 2018
BRUSSELS INSIDER #1 by Sonja van Renssen
Interview Iberdrola’s Director of Climate Change Saenz de Miera: “Europe is losing leadership”
May 8, 2018
In renewables there are more investments today in the US and China”, saysGonzalo Saenz de Miera, Director of Climate Change at Iberdrola, a world leader in renewables, in an interview with Energy Post. “Europe is losing its leadership.” Saenz de Miera calls for abinding target for 2050, not just 2030, and for it to be more ambitious than the current 80-95% greenhouse gas emission reduction. He also advocates “polluter pays” taxation that puts a heavier burden on transport. Iberdrola is not optimistic on power-to-gas and believes gas is “niche and replaceable”.
Iberdrola is one of the world’s largest electricity utilities and a leader in renewables. It has almost 30GW of installed renewables capacity and leads the world on wind. Its emissions are about a third lower than the European electricity sector average. Since the economic crisis, Iberdrola has focused on five markets: Spain (its home market), the UK, the US, Mexico and Brazil.
On 23 April, Iberdrola’s Director of Climate Change Gonzalo Saenz de Mieracame to Brussels to for a more ambitious European climate policy. The company wants the EU to set a binding target for 2050, not just 2030, and for it to be more ambitious than the current 80-95% greenhouse gas emission reduction committed to by heads of state and government. The goal should be “fully aligned” with the Paris Agreement. In practice, that probably means going to a net zero economy, although Iberdrola is not (yet) backing the Europen Parliament’s call for a “net zero emissions” goal in a new governance regulation that is part of the EU’s Clean Energy Package.
“My message is that far from being a barrier to economic development, this is a unique opportunity to create prosperity,” Saenz de Mieratold Energy Post in an interview to concide with his visit. Iberdrola’s call comes as the European Commission prepares a new 2050 climate strategy for the EU for release in November, and governments meet for a preparatory round of talks in Bonn, Germany, ahead of the next UN climate conference in Katowice, Poland, in December. Iberdrola recently submitted to feed into this process.
Saenz de Miera was in Brussels to present an analysis showing that decarbonisation of the energy sector in Spain – and by extension much of the rest of Europe, he said – is viable. Iberdrola’s number one policy ask to make this happen is “fiscal reform based on the “polluter pays” principle”. In other words, like earlier this year, it proposes an extension of the carbon price and renewables levy from the power sector to heating and cooling and transport. Portugal has already done it and Spain is , Saenz de Mieranoted.
This would mark a policy shift from recent years, when the Spanish government has been in the news for retroactive cuts to renewables subsidies, a “sun tax” on self-consumption and for in the country.
Saenz de Miera warns that Spain and Europe will miss out on a lot of opportunities if they don’t take back leadership on renewables. Conversely, “the role of natural gas will become narrower if you become stricter in your low-carbon path”. It is gas that will take a hit if the EU increases it’s long-term emissions goal above 80%, Saenz de Miera notes. He is not very optimistic about power-to-gas. Nor is he worried about how the energy system will cope with more renewables. The Spanish analysis assumes no increases of interconnection capacity to guarantee power supplies. It is also very conservative on back-up, assuming a “worst case” scenario of open cycle gas plants for this. Then again, curtailment also becomes “much less important” with renewables down to €20-30/MWh, Saenz de Miera argues.
Q: What’s your take on EU climate policy?
A: We are convinced that climate change is the greatest challenge facing humankind. The EU is progressing in reducing emissions, but at insufficient speed. We are asking for a more ambitious approach.My message is that far from being a barrier to economic development, this is a unique opportunity to create prosperity for European citizens.
Q: What does “a more ambitious approach” mean in concrete terms?
A: It implies objectives for 2030, but also for 2050. We make long-term investments and we need certainty for the future. Yes, we have the goal of an 80-95% emissions cut, but we need a more ambitious objective and it needs to be compulsory.
We would like to see the EU set a specific goal for 2050 in its new long-term climate strategy that is fully aligned with the Paris Agreement.
We have analysed how the energy sector in Spain should evolve to reach an 80% emissions reduction by 2050. Our conclusion is that it is possible from an economic and technical point of view. After the revolution in clean energies, especially PV and wind, the 80% or 90% emissions cuts that only five years ago seemed very complex and costly, have become achievable with current technologies. So we can aim higher.
It’s like a Greenpeace scenario ten years ago. Now, with the current cost, it’s viable. It’s not only viable, it’s good since it mitigates climate change, improves air quality and leads to having more affordable energy.
Q: What kind of policy could facilitate a shift towards a zero emission economy?
A: If we have to choose one policy, fiscal reform based on the “polluter pays” principle is it. In Europe today, electricity consumers pay for CO2and the cost of renewables, while fossil fuel consumers don’t pay for either. This is very inefficient and distorting. It wasn’t a problem in the past because there was no competition between electricity and oil. But today there is, for example in transport.
A report presented in Spain three weeks ago on the energy transition and climate change contains a very detailed proposal for green fiscal reform. Basically what they say is that energy users should pay for CO2 and other pollutants – this is also very important for air quality – and all energy consumers – not just electricity consumers – should pay for renewables.
The Spanish government is thinking about approving a new fiscal law including this principle. It’s still very early stage. But other countries are already doing it. For example, Portugal approved a fiscal reform last year so that transport now pays the same CO2 price as in the EU ETS.
Q: Do you see a role for the EU in this kind of environmental fiscal reform?
A: We know it’s tricky at EU level. You need unanimity [for any kind of fiscal reform]. But the EU could send a general message recognising the problem. It is only going to get bigger as the EU ETS price increases. There will be a distortion that favours the most polluting energies.
We also think that air quality policies are going to be very important for decarbonising the energy system, especially for transport. This is because while a carbon price can level the playing field and generate revenues to finance the energy transition, it will only marginally raise the price of gasoline and therefore won’t change behaviour.
Q: How optimistic are you about the EU ETS? Do we need a carbon floor price?
A: We need to do something because carbon prices are not high enough to drive changes in operations or investment. A floor price would be a possibility. Everyone knows we need prices between €20 and €30 a tonne. The UK has a carbon floor price. And in the UK we had the biggest coal facility in Europe – Longannet – and we closed it. Why? Because the signal was there.
Q: How interesting is Europe within your global portfolio?
A: It is doing things of course, but it is also maintaining coal and not fostering enough renewables. Emissions increased last year. In renewables there are more investments today in the US and China. Europe is losing its leadership. It shouldn’t just think about how to protect its position but how to lead.
Iberdrola is an international company – we are in Spain, the UK, US, Mexico and Brazil – and we go where they have this vision. We are investing a lot in the US, Mexico and Brazil because they have powerful support for renewables and markets with very interesting prospects.
Q: At the informal energy council in Sofia, Bulgaria, on 19 April, EU energy ministers were still divided over how ambitious Europe should be on renewables.
A: Let’s look on the bright side. Only one year ago the renewable energy objective for 2030 was 27%. Now 30% is on the table and the Parliament is proposing 35%. The good news is that renewables are fully competitive, when only five years ago they needed support schemes.
Q: What could further boost your European business?
A: I’m not a regulation specialist but for me, this compulsory, long-term objective is very important. Of course you will have to adjust some things in the market, but once you have the long-term signal you can use different support schemes: auctions, renewable portfolio standards or fiscal incentives like in the US, where taxpayers pay for renewables support.
Another key issue for Europe to lead global climate action is to decarbonise the end-uses of energy across all sectors of the economy. We are sometimes too focused on industrial production. Of course we have the EU ETS, but we need to decarbonise energy use in heating and cooling and transport, too. Policy should also provide signals to decarbonise these sectors, for example through taxation or regulations for more efficient buildings or more efficient systems like heat pumps.
Look at the Spanish case: for an 80% greenhouse gas emission reduction by 2050, you need to reduce energy consumption and substitute fossil fuels with renewable electricity. You will have to decarbonise transport through electric vehicles and buildings through efficient solutions for heating and cooling, such as heat pumps. Even so, final demand for electricity will double only in 30 years time.
Q: What challenges do you foresee accompanying all these renewables, for example on the grid front?
A: We don’t see big problems. You will need a robust network and big investments, but the main change is that you’re moving from the current model where we buy in energy from abroad, to invest in networks and renewables [at home]. It will be very good for jobs, industries, and the country’s balance of payments [reduce the trade deficit].
In Spain, the final electricity price would come down by a third in about 15 years time. Why? Because the cost of renewables is lower than that of fossil fuels.
We assume current and planned interconnections. They matter to curtailment, but curtailments in the past were very costly because the price of PV in Spain was €400/MWh. With costs now at €20-30/MWh, this issue becomes much less important.
Q: The energy system needs more storage. How do you see the role power-to-gas in this regard?
A: We’re not very optimistic. We’re much more optimistic about electrification. We think it’s much more competitive. You have renewables and you can apply them directly or you can produce gas with 50% lower efficiency. With the cost of renewables down, the most interesting thing is to electrify.
Of course if you have interconnections it’s better for everything but we haven’t assumed increases of interconnection capacity in our scenario to guarantee supplies in Spain.
We assume that about half the renewables will be PV and half wind [which can help balance one another out]. We were very conservative on back-up – we didn’t consider batteries or demand-side management. We took the worst case scenario, which would be open cycle gas plants. We also consider that at least for now the most efficient storage in Spain is hydro.
Q: What does going to a zero emissions economy mean for gas
A: The role of natural gas will become narrower if you become stricter in your low-carbon path. Gas can a play a role in some industries, in some buildings, but it’s niche and it’s replaceable. If instead of aiming for 80% you aim for [a] 95% [emissions cut] in 2050, you have to reduce the use of gas because it is the only non-renewable energy left.
Their outlook is not bad with 80% but if you go to 95%, instead of 27% you have something like 7% gas [in the final energy mix].
In Europe in 2017, energy-related emissions increased by 1.5% and much of this increase was due to gas, according to the International Energy Agency (IEA). If you do not tackle energy efficiency especially in natural gas, it’s very difficult to advance the decarbonisation of the economy.
Q: Spain is often held up as an example of a country where policies have not always favoured renewables – the government late last year forcing two of your coal plants to stay open, the so-called “sun tax” on self-consumption and retroactive cuts to renewables susbsidies. Nonetheless, you’re saying that an 80% emission reduction in Spain by 2050 is perfectly feasible and we should be aiming for more?
A: Spain also has positive stories, such as the development of wind [until the subsidy cuts] that has created a leading industry that is taking advantages of business opportunities worldwide. Regarding coal, most prospective analysis at international and national level shows a strong reduction of coal in the energy for environmental reasons in the context of the Paris Agreement and the EU objectives.
BRUSSELS INSIDER #2 by Sonja van Renssen
European Commission: one-quarter of new budget to go to climate
May 8, 2018
The European Commission wants the EU to spend a quarter of its next budget on climate action. If that sounds like a lot, the current goal is already a fifth. Environmentalists are positive, but worry about the 75% of the budget not pledged for the climate. R&D and energy “infrastructure” may do well, but the question is what research – and what infrastructure. There is talk of a “mission approach”, which could include a plan for “100 carbon-neutral cities by 2030”.
One, it’s bigger than the current budget, although the EU will shrink by one Member State. Note that the increase is smaller than expected however.
Two, it’s still mainly dependent on national contributions (and actually makes up a slightly higher proportion of Member States’ combined GNI), although it is accompanied by a fresh push for “own resources”. Such resources are supposed to make up 12% of the next budget, including 20% of EU ETS revenues and a new tax on non-recycled plastic waste.
Three, it cuts back on funding for the EU’s traditional priorities, notably agriculture and regional development, to make way for new priorities, notably migration and security.
Research is a big winner. Politico names EU Research and Innovation Commissioner Carlos Moedas as as the budget’s “bellwether”. His department will be in charge of €100 billion (up from €77 billion today) of EU money, “that will do most to shape Europe’s future economic prospects”.
The pledge to make sure that a quarter of the next MFF supports climate action is “a very important political signal”, Jonathan Gaventa, a Director at , told Energy Post in an interview. It’s higher in both percentage and absolute terms than for the current budget. The pressure is enhanced by Brexit because the UK was a major recipient of climate innovation funds. “What’s really going to matter is how it’s accounted and spent [however],” he adds. The European Court of Auditors has reported that the EU is to its current 20% mainstreaming goal, but urged better reporting and follow-up of money spent.
The Commission has yet to spell out the details of how it intends to do its climate mainstreaming. Gaventa expects a “meaningful strategy” in the next few weeks. There has been talk of a “missions” approach to research and innovation, that could include “climate” missions, such as
100 carbon neutral cities by 2030, for example. The Commission is due to publish more detailed plans for research and innovation on 6 June.
A new plan to make funding more conditional also extends to climate and energy, with plans to include climate change as one criterion for the distribution of cohesion funds. This would let the EU direct more money to areas particularly affected by climate change or needing to phase out a high dependence on carbon-intensive industries, for example. It could also reward countries with ambitious national energy and climate action plans. These plans will be required under a new governance regulation currently being decided by EU lawmakers as part of the EU’s Clean Energy Package. More details on the new cohesion funds are also due on 6 June.
One disappointment to Gaventa – and many NGOs – was the lack of reference to a phase-out of fossil fuel subsidies. The EU committed to do this by 2025, in line with the rest of the G7, in 2016. That date falls squarely within the next MFF. Environmentalists worry about the 75% of the budget that is not pledged to climate action. Gas infrastructure is a particular concern. The undoubtedly has some worried, although Gaventa points out that even the Commission says that by 2022 the gas infrastructure needed for security of supply should be largely completed.
Many eyes will be turned to the Commission’s more detailed budget proposals for the Connecting Europe Facility (CEF), also due on 6 June. The CEF is a special fund for transport, energy and broadband infrastructure. Its energy envelope is due to double after 2020. The Commission is talking about supporting “smart” and “sustainable” infrastructure – . It may also fund cross-border renewables projects in future.
Climate and environment advocates welcomed the new tax on plastics. Tomas Wyns, a researcher at the Institute for European Studies at the Vrije Universiteit Brussel, that the €0.8/kg levy on unrecycled plastic waste equals a €400/tonne CO2 tax on plastic consumption. The call to channel 20% of EU ETS revenues to the EU budget meanwhile, could be a whole new rationale for a carbon price floor.
Outraged by agriculture cuts
The EU budget is officially called the Multiannual Financial Framework (MFF) and it’s typically set for seven years. The current MFF runs from 2014-20.
The MFF is only about 1% of the combined Gross National Income (GNI) of its Member States, but it has tremendous political significance. It gives direction. It shows that the EU puts its money where its mouth is. More and more, it will be a spring board for mobilising private sector investment, including through the European Investment Bank (EIB). It can also plug market gaps, for example in financing energy efficiency. And in some parts of Central and Eastern Europe, it makes up a high share of overall public investment.
The Commission’s challenge has been to accommodate new priorities whilst losing a major contributor. It’s to plug the €12-14 annual gap that will be left by Brexit that the Commission is proposing “own resources” (not a new idea, but with a better chance of success this time round). It is also proposing to cut agriculture spend by 5% and regional development or “cohesion” spend by 7%. Together, these two amount to about 70% of the EU budget today (the requirement for a fifth of the budget to go to climate action is a horizontal one). Just like the increase to the overall budget, the cuts are more moderate than expected, but don’t expect that to appease Member States.
Central and Eastern Europe are set to lose out on both the agriculture and cohesion fronts. Plus, Hungary and Poland will not be happy with another innovation: the Commission has gone ahead with controversial plans to link the distribution of EU funds to respect for rule of law.
Plenty of Western and Northern European governments also complained, loudly, in the aftermath of the Commission’s proposals. France was outraged by the agriculture cuts. Its agriculture minister Stephane Travert said in a press release: “Such a drastic, massive and blind cut is simply unimaginable.” To illustrate just how divisive the farming proposals are, an analyst from think tank the European Policy Centre, Annika Hedberg, said: “According to the Commission, the EU in 2018 should prioritise cows over people.” Germany, the EU’s biggest net contributor, is worried about taking on more than its fair share. The Netherlands, Sweden, Denmark and Austria don’t want to pay more than they already do.
The Commission’s proposals are not a radical departure from the past. But they are a start. The EU budget is supposed to get things going; other initiatives such as the EU’s sustainable finance action plan are there to help with the rest. The MFF needs unanimous approval from all Member States, plus the green light from the European Parliament. The Commission aims to have it all wrapped up before the Parliament’s elections next May, but that’s not how things worked out last time. And that was before Brexit and Paris.