Fossil Fuel Lobby Celebrates as EU Gives Coal Subsidies a Lifeline

Fossil Fuel Lobby Celebrates as EU Gives Coal Subsidies a Lifeline
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Many hoped the EU’s mammoth new energy regulations would crack down on dirty coal. Instead, the European Commission bowed to industry pressure and offered the world’s dirtiest power source a lifeline.

And Brexit means the UK could end up offering even more fossil fuel subsidies than its neighbours.

The commission on Wednesday released its 1000-page vision for the region’s energy system, known as the energy package.

Among the many new clauses and directives was the revelation that governments could continue to subsidise coal power for a further eight years through capacity mechanism schemes.

It wasn’t all bad news. Some of the suggested reforms should make it harder for countries to prop up the fossil fuel market.

But they may not kick in before the UK leaves the EU.

Keeping Fossil Fuels Alive

Among the thousands of pages of text were a few important paragraphs about fossil fuel subsidy schemes known as capacity mechanisms.

The schemes allow governments to spend millions keeping fossil fuel power plants online in the name of energy security. While they may help to keep the lights on, they’re a real problem if countries are also trying to cut emissions.

As countries get increasing amounts of power from renewables, fossil fuel power plants becom less profitable. But as the wind doesn’t blow and the sun doesn’t shine all the time, some of these are still needed. So governments offer to pay them a certain amount to keep them online.

The problem is, they don’t prioritise less polluting power plants. That means dirty industries such as coal can end up with huge subsidies.

And that’s precisely what has happened in the UK, which already has a scheme called the capacity market.

Old coal power stations are set to make about £273 million and diesel operators are in line for an £800 million windfall from the UK’s scheme, according to thinktank Sandbag.

The UK remains committed to phasing out coal from its energy mix by 2025. But the capacity market may prolong the lifetimes of some power plants compared to if the market was left alone. And it could ultimately allow dirty power sources such as diesel and inefficient gas to fill the gap coal ultimately leaves.

Subsidy Scheme Reform

Unsurprisingly, fossil fuel companies are big fans of capacity mechanisms.

EurElectric, a lobby group that represents national energy associations including Energy UK, has been pushing the commission to allow the mechanisms without any environmental controls.

Green campaigners hoped the commission would crack down on these schemes in this week’s package. But it has instead only outlined a few changes that could make the schemes slightly more effective.

For instance, the commission proposed that old coal power plants can only be supported for five years once the capacity mechanism schemes come in.

But as all the new provisions won’t formally come into force for another two to three years, that’s a further eight years that coal can continue to claim subsidies.

The commission also said that deciding how much backup power is needed would now be done on a region-wide rather than country-by-country basis. That should stop individual countries being overly cautious and keeping much more dirty power online than necessary, as they currently do.

But there is a potential hitch. The commission has proposed a process whereby any country that wants a new capacity mechanism must go through a review run by a European body known as ENTSO-E.

ENTSO-E is composed of country-level grid operators including companies such as National Grid.

National Grid recently reported operating profits of £1.2 billion in the UK, and was forced to defend accusations of profiting from overly generous regulations.

Such companies have a vested interest in retaining as much spare capacity as possible to be doubly sure the lights never go off, and keep their big government contracts safe. So capacity mechanisms are an attractive prospect.

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The commission also suggested banning power plants that emit more than a certain amount from participating in the schemes.

It suggests a level of 550 grams per kilowatt hour, which power plants would have to comply with by 2026. That limit is much lower than the amount coal plants currently produce, so it could, in theory, disqualify them from profiting from capacity mechanisms.

But even that isn’t clear, as coal power plants potentially could be included if they agree to run at half capacity.

And 280 coal plants along with 13 new ones across Europe could benefit from the schemes until that point anyway, according to Greenpeace.

As Jonathan Gaventa, from thinktank E3G, told DeSmog UK:

The hope was that this legislation would really bring the bar down on capacity markets and stop payments to coal in particular, and also to have a clear phase out route to giving money to gas plants, too. And it has not done that.

It has introduced a number of criteria and checks and balances and requirements. But as it’s framed at the moment, countries will be able to give money to coal for at least eight years and to gas perhaps indefinitely.”

Things are further complicated by the UK’s decision to leave the EU.

The UK is expected to get the Brexit ball rolling in 2017, and it’s likely to take at least two years for it to fully exit the EU. The EU’s energy package will be negotiated for at least that amount of time.

If the extra regulations don’t come into force in time, the UK could avoid the restrictions and push ahead with its capacity mechanism without the EU safety net – potentially subsidising fossil fuels even more than its neighbours.

So the EU seems to have given some of Europe’s dirtiest power plants a lifeline, disappointing those that were hoping it would sound the death knell for a fossil-fuelled energy system.

Hitting Renewables

The commission also bowed to industry pressure on a some other items.

Previously, grid operators had been obligated to take renewable power when it was available at the expense of fossil fuel power. Under the new proposal, that will no longer be the case.

The commission also recommends caps on the size of cooperatives that could invest in community schemes that produce renewable power and sell it to the grid. That effectively removes another competitor to fossil fuel companies from the market.

As Tara Connolly from Greenpeace Europe told DeSmog UK:

“When renewables are given priority they’re being given priority over something. And that something is nuclear plants, coal plants and gas plants.

Obviously companies that are more involved and invested in those technologies would rather remove these provisions because it means they get to sell more and be more present in the market.”

Added to the capacity mechanism regulations, it starts to look like the EU has begun a minor assault on renewables. The fossil fuel lobby will be pleased the commission shares so much of its vision.

Main image credit: underclassrising.net via Flickr CC BYSA

Fossil Fuel Lobby Celebrates as EU Gives Coal Subsidies a Lifeline
Mat was DeSmog's Special Projects and Investigations Editor, and Operations Director of DeSmog UK Ltd. He was DeSmog UK’s Editor from October 2017 to March 2021, having previously been an editor at Nature Climate Change and analyst at Carbon Brief.

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