State of the Energy Union 2021: how to conceal market fraud
Every year the European Commission reports on the State of the Energy Union, taking stock of the progress that the EU is making in delivering the clean energy transition. The production and use of energy accounts for more than 75% of the EU’s greenhouse gas emissions. Decarbonising the EU’s energy system is not only critical to reach climate targets, but it is essential to ensuring that the energy sector works for both people and the planet.
Nearly two years after the launch of the European Green Deal, this year’s report is presented against the backdrop of an unprecedented increase in energy prices across Europe, the closure of a disappointing COP26 in Glasgow, and the recovery from Covid19.
Unfortunately the picture depicted by the Commission’s State of The Energy Union is very far from what is needed to tackle the urgency and extent of the social and climate crisis we are facing today.
Who is benefitting in this Energy Union?
According to the Commission, in 2019 over 31 million people in Europe live in energy poverty struggling to heat and light their homes. The soaring prices of gas and electricity are throwing tens of thousands more into energy poverty and precarity. So while the more wealthy segments of society will be able to transition towards greener, more efficient and cheaper energy solutions, people living in energy poverty will be effectively locked into more expensive fossil fuel use, and will continue to pay high prices. This is put black on white in the State of the Energy Union Report when it is argued that “proactive consumers” and “prosumers” (i.e. people or entities that both produce and consume) will be shielded from price fluctuations. What will happen then to people who cannot afford to be “proactive consumers”?
If people living in energy poverty are the ones paying the highest cost for this Energy Union, there are also some that make profit out of it. Unfortunately, these continue to be fossil fuels companies and the energy giants dominating the market. According to the Commission, fossil fuels subsidies (which still make up 30% of all EU subsidies) reached a whopping €52 billion in 2020.While this is a slight decrease from 2019 we should not get our hopes up since it turns out that the reduction in fossil fuel subsidies was simply linked to lower energy consumption in the wake of the Covid-19 pandemic and was not, in any way, the result of a clear political choice prioritising people and planet.
Blind faith in the market
For decades, the European Union pushed a process of privatisation and liberalisation of the energy sector under the false promise that this would lead to greater efficiency, lower consumer prices, and a decarbonised economy. Nothing could be further from the reality.
The energy market was designed to work as a “pay as you clear” (i.e. marginal) auction where all electricity producers – from fossil fuels to wind and solar – bid into the market and offer energy according to their production costs. The bidding starts from the cheapest resources – renewables – and finishes with the most expensive one – usually natural gas. Since most countries still rely on fossil fuels to meet all their power demands, the final price of electricity is often set by the price of coal or natural gas. If gas becomes more expensive, electricity bills inevitably go up, even if clean, cheaper sources also contribute to the total energy supply.
Interestingly, in this report the European Commission argues that “… there is no clear evidence” that a different market design would result in lower prices and better incentives. There has been a request to the EU’s Agency for the Cooperation of Energy Regulators (ACER) to conduct an assessment of the energy market and its drawbacks in the face of extreme price volatility.
The view from The Left
Rising energy prices and Europe’s slow pace in setting the climate transition in motion are proof of the failure of neo-liberal policies. Climate change is no longer a risk to be avoided, but a reality to be fought. To do so, however, we must change course and stop relying on market based solutions. People and the planet need to be placed at the core of the energy sector , not the profits of a few energy giants dominating the market.
Energy is not a commodity. The fight for energy as a right goes hand in hand with the ecological and energy transition, one cannot be won without the other. Today the energy market is designed to generate systematic and legal fraud enabling big corporations to sell cheap renewable energy at the price of expensive fossil fuels.
We must revise the way the energy sector is regulated, reclaiming energy from the market and getting democratic and public ownership of the sector.
What our MEPs say
MEP Cornelia Ernst, Die Linke Germany:“Market-based solutions fail to deliver on tackling climate change and the Energy Union continues to cater to Big Business and its fossil fuels and nuclear agenda. Supposedly, renewables have overtaken fossil fuels as the EU’s main power source; however, the expansion of renewables is too slow as the dependence on net energy imports increased to 60 %, the highest level in 30 years. Needless to say that these imports continue to originate primarily from fossil and other non-renewable sources. We need an Energy Union that drives a real energy transition, serves the public interest, and tackles climate change.”
MEP Sira Rego, Izquierda Unida, Spain
This report clearly illustrates that the European energy model is leading us to collapse. The data show that there has been no reduction in energy consumption, which is essential for tackling climate change. At the same time, fossil fuels continue to be subsidised and the marginalist market keeps benefitting energy oligopolies. This model has pushed 31 million people into energy poverty and made electricity prices skyrocket, affecting the pockets of working people, while also producing an unbearable level of emissions for the planet. We believe that the alternative to this is a decentralised and publicly controlled renewables model that meets the needs of the people of Europe.
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