Mitigation of climate change and increasing European energy security have compatible goals – to reduce our dependency on fossil energy. When considering measures to alleviate current economic burden for consumers these should be planned in a way not prolonging the status quo, but accelerating development towards clean and secure energy system, says Board of Climate Leadership Coalition.
The past year has seen prices of energy commodities rise to unprecedented high levels across Europe.
Higher prices have hit consumers and businesses in many ways. Transport and heating costs have increased as have industrial energy costs internationally.
According to the International Energy Agency (IEA) Europe can reduce its use of fossil energy through energy efficiency, electrification, conservation, increasing energy production from existing bioenergy and nuclear plants, speeding up the replacement of gas and oil boilers with heat pumps, reinforcing the adoption of electric and other low-carbon transport and accelerating deployment of wind and solar installations. Most of the measures need large investments.
However, there are views that the level of ambition regarding climate action and the decisions for the Fit-for-55 proposal should be delayed and that tax or other carbon price cuts on fossil fuels should be applied to support consumers and vulnerable businesses. These would postpone the green transition and will not improve the energy security.
To attract decarbonisation investments, which will come primarily from the private sector, the long-term climate objectives should be clear, and the pricing environment should make the business cases for the new investments profitable. Most of the investments have long life cycles and if the 2030 target and the pricing environment between 2030 and 2050 are unclear, many companies will delay or postpone climate investments causing a reverse effect to the objectives. Additionally, reopening the recently agreed EU Climate Law would seriously undermine credibility of the EU and its policies.
The other problematic development is a temptation to lower fossil fuel taxes or clean fuel obligations to support consumers and vulnerable businesses. These measures would increase fossil energy use and make fossil fuels more competitive, thus weakening the business cases for climate friendly solutions. By increasing the demand for fossil fuels, the measures could also increase fossil prices, especially if there are bottlenecks in the supply side. Even if proposals are planned to be temporary, they nevertheless undermine climate investments and it may be difficult or impossible to revert the decisions, if the energy crisis will continue.
In addition, we would like to point out that, even a temporary decrease in fuel taxes would cause a deficit from government budget point of view. The deficit should be covered either by increasing other taxes – particularly property and value added taxes – or public debt, or decreasing government spending on other public services. Increasing labour tax would be problematic, because the existing level is already so high and in climate neutral circular economy, we should make work cheaper and pollution and limited natural resources more expensive. In addition, higher labour taxes would erode consumers purchasing power.
CLC Board believes that there is and will be a need for supporting consumers and vulnerable businesses, but the measures should be planned and selected so that they do not slow down the decarbonization or increase risks of misguided investments. One possibility to alleviate the cost burden could be lowering of energy taxes for renewables. This would lower the prices for consumers and businesses and maintain incentives to reduce use of fossil fuels, to improve energy security and to decrease carbon emissions. For example, in the case of transport fuels this would mean a lowering of energy tax for renewable fuels under blending obligation.
Going backwards in fossil fuel taxation or postponing the green transition is the opposite of what is needed to build a successful transition to improve the energy security and to build a more prosperous sustainable economy. We can and must accelerate the transition away from fossil energy and support consumers and vulnerable businesses in parallel.
Climate Leadership Coalition is a non-profit association and Europe’s largest climate-business network. CLC’s members employ 530,000 people globally and CLC’s corporate members represent about 70% of the market cap of OMX Nasdaq Helsinki. CLC’s members believe that transitioning society towards a sustainable economy and consumption habits is not only possible but also economically viable.
More information: Jouni Keronen, CEO, Climate Leadership Coalition, firstname.lastname@example.org, +358 50 4534881, Juha Turkki, Development Director, Climate Leadership Coalition, email@example.com, +358 45 3461925.