The Electrification Action Plan and review of the Emissions Trading Scheme (ETS) published by the European Commission today are the economic and security blueprint for our Union in these uncertain times.
Those arguing for backtracking on the green agenda will no doubt cite the adjustments in the Emissions Trading System as a vindication of their position. However, while they do provide greater flexibility and a less steep incline in the price of carbon for our industry, they do not amount to a change in the strategic direction we are taking.
The doubters have no answer to the question as to how we will be more competitive or secure when we are still reliant on burning other people’s fossil fuels. That dependency only brings devastating climate change, inflationary recessions, resource wars and expensive bills for all our people.
Most smart investments are now going in the cleaner direction. The Electrification Action Plan is the more important of the two documents published today, because it sets out how Europe can compete in the new clean industrial revolution that is starting to take hold.
The plan contains few new legislative proposals, as existing European energy legislation already supports electrification, so as the plan says; ‘our starting point should be its full and effective implementation.’ We do need to simplify and speed up the implementation process, but we do not need to dismantle all the policy structures that have already been put in place either.
What the plan does is outline some of the main barriers that are holding us back and offer certain solutions. We have already made real progress in switching to cleaner generation, which now provides 70% of our power, so the focus has to be on the demand side.
First and foremost, we have to make electricity cheaper, especially in comparison to gas. That is needed if we are to get all the efficiency gains that come with electric vehicles and heat pumps. A first step would be to lower the taxes on electricity and raise them on fossil fuels instead. Because the heat and transport sectors are next up for change, we should proceed with the second phase of the Emissions Trading Scheme (ETS2) which covers those areas. The Carbon Border Adjustment Mechanism and Corsia Aviation levy can meanwhile help protect our position in the harder to abate sectors, which will take longer to adjust.
A second barrier is the high upfront costs in electrifying our factories, transport and home heating systems. The plan proposes new social leasing models as one way of unlocking capital to help upgrade our homes. They could be complemented by the Social Climate Fund which the ETS2 revenues are designed to support.
Thirdly the plan backs up Enrico Letta and Mario Draghi’s advice, that it is all about the grid, when it comes to building a new competitive economy. Everyone wants a faster permitting system, so we get quicker connections, but what is equally important is promoting greater flexibility, so we get more use out of every wire, to bring costs down and improve efficiency.
A fourth barrier has been the slow pace in scaling up new nuclear, green hydrogen and carbon storage technologies. They have been more expensive and harder to deploy than their advocates promised. While they may have a future role, we should not let their potential development be a distraction from the more immediate investment priority, which is to help balance variable electricity demand with variable electricity supply.
The last two action areas relate to how we build skills and supply chains and how we see electrification in a global context. When one thinks of European energy, it makes sense to include everyone from Reykjavík to Mariupol, so we build a common and continental electricity market, which is cheaper to run and better protected from every form of attack.
We also need to think globally, rather than just adopting a fortress Europe approach. Our advances have to be in line with the UNFCCC and the Paris Agreement, recognising that this is the peace project of our time. It will work best when no one is left behind or can be held to ransom over the future supply of any essential kit. There is enough work for everyone and no shortage of raw materials, as long as they come via a fair and transparent trading system.
You could be critical about what is not spelled out in the plan, for example a lack of detail on how we might invest with lower interest rates in our grids or how variable grid charging might work in practice. However, the Commission is working on a range of other initiatives which are designed to deliver on this plan. It will evolve as the ‘grids package’ is agreed this year, and new initiatives around network tariffs, energy investment and security unfold.
At least we know that we have a plan and the means to turn it into reality. The one unspoken barrier or risk is a possible loss of nerve on the political side.
Around one in five European voters are supporting populist parties, who are in various stages of climate denial. They have no alternative competitiveness strategy, that does not involve abandoning the laws of physics and chemistry and all the risks that would entail.
Another large part of the electorate supports the European People’s Party, who seem uncertain whether to oppose or join this new populist faction. They need to hold the centre ground and help deliver a safer electric future, which is a project that can belong to every political grouping.
Regional elections in Germany in September might be the first test of which political choices will be taken, but the battle lines are at least now clear. Either we adopt this plan and make Europe the world’s first electro-powered continent or else we hand over our fate to external influences. I know which outcome I prefer.