To mitigate the impacts of the price crunch, coal power plants have been reopened and  governments have rolled back taxes for energy companies, essentially providing subsidies for fossil fuels.

The current hike in energy prices is threatening to overshadow the COP26 climate summit this November as countries scramble to tackle the rising costs of electricity, oil and gas, warned a senior executive at Spanish power firm Iberdrola.

As the world reopens after the COVID-19 pandemic, the sudden high demand for gas, conflated by other factors, has caused a spike in energy prices.

But policies brought in by European governments to try and tackle the soaring prices risk looking hypocritical in light of the climate ambition they are demanding from the rest of the world at the COP26 summit.

Spain, for instance, has capped gas prices and cut taxes in order to help alleviate some of the strain.

“Despite the positive perspective for the energy transition at the EU level, soaring energy prices could jeopardise EU climate action,” said Gonzalo Sáenz de Miera, director of climate change and alliances at Iberdrola, the Spanish multinational electricity company.

“This situation is threatening the case for a rapid shift to clean energy sources by some measures recently passed by some EU member states,” he told a EURACTIV event on Thursday (30 September), supported by Iberdrola.

Leaders of European Union countries will discuss surging energy prices when they meet next month, as governments scramble to cushion households from the soaring cost of gas and power.

Conflicting messages

The energy price crunch comes amid calls from the UK’s lead on COP26 for a global agreement to end the use of coal power and switch to renewables.

Yet there is a danger that the energy price crunch is having the opposite effect, undermining the incentive to decarbonise created by Europe’s carbon market, the Emissions Trading Scheme (ETS), where prices reached an all-time high of €65 per tonne last week.

To try and mitigate the impacts of the price crunch, coal power plants have been reopened and  governments have rolled back taxes for energy companies, essentially providing subsidies for fossil fuels.

“What is happening now, for instance in Spain, is that there is a charge for non-emitting plants to extract the income from high gas prices and from high CO2 prices. This is a very bad message in Europe,” warned de Miera.

“It does not comply with the European single market. It may break the ETS if some populist governments in EU countries say ‘Spanish users are not paying for CO2, why do I have to pay for it?’ So this is a very dangerous movement,” said de Miera.

De Miera warned that this also creates confusion in the energy market and will cause a drop in investments in renewables.

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October 5, 2021