How Europe is trying to build a future free of fossil fuels in the midst of an energy crisis

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Entering a winter in which its member states will struggle to keep lights on and homes heated, the European Union is aiming to wrap up years-long negotiations for what might be the world’s most ambitious climate-policy package.

If lawmakers in the de facto EU capital of Brussels pull it off, it will stand as a remarkable example of forward thinking at a moment when it may be hard to see past tomorrow. Amid concurrent efforts to address immediate gas shortages caused by Russia’s invasion of Ukraine, they could take a big step toward never again getting caught in such a situation by dramatically accelerating a long-term shift away from fossil fuels.

But to do so, they have to avoid being derailed by mounting tensions around the immediate crisis response while they try to swiftly hammer out key details about how the long-term strategy will work and how rapidly they can require entire sectors to decarbonize.

And time really is of the essence, as some of those affected industries nervously await the specifics of the new climate laws before ramping up investments to comply.

EU leaders avoid deep rift on gas price cap at energy summit

Part of the balancing act is being executed through a new strategy, REPowerEU, which commits about €210-billion toward replacing Russian energy supplies. Only a small portion of that is for new fossil-fuel purchases; a much bigger one is for energy efficiency and renewables.

But it’s the longer-gestating legislative package known as Fit for 55 – named for the EU’s goal of cutting greenhouse-gas emissions 55 per cent from 1990 levels by 2030 – that will serve as the primary vehicle for the massive structural change promised by Europe’s version of a green new deal. Among its measures are the expansion of carbon pricing and implementation of accompanying tariffs, dramatically heightened renewables and efficiency requirements for all members, a ban on vehicles with internal combustion engines, and social funds to cushion the upheaval.

­­Somewhat remarkably, there has been limited public dissent among the EU’s 27 member states about the plan’s objectives. That’s been interpreted by Fit for 55′s architects as recognition that energy-security imperatives brought to the fore by Russia’s actions are aligned with the emission-reduction needs of a pact of countries with minimal fossil-fuel production of their own.

But it’s clear from interviews here that, even as EU officials insist they’re optimistic about finalizing the package’s core pieces by the end of this year or early 2023, there is nervousness lurking beneath the surface about maintaining the fragile consensus.

“There is, I think, this fear that going into winter, as the knife cuts closer to the bone, there may be a deterioration in solidarity,” said Sandra Tzetkova, a policy adviser at the Brussels office of international climate-policy think tank E3G.

That risk has become increasingly clear this fall, as Germany has come under fire for using its relative wealth to commit large sums to shielding its citizens from skyrocketing energy costs while resisting EU-wide policies such as a cap on the price of gas.

At the end of this week, German Chancellor Olaf Scholz reluctantly began to give ground on that particular issue. Still, it has hardly been the demonstration of common cause that Ms. Tzetkova and others suggest is needed to maintain unity on longer-term plans. It’s giving an opening to governments such as Poland’s, among the most resistant to some of Fit for 55′s proposals, to question the sincerity of claims that their long-term interests are being protected.

Meanwhile, elections in Italy and Sweden have put right-wing populists into or closer to power, further imperilling the consensus that climate, security and economic interests intersect.

“I would lie if I said that I don’t have any concerns at all,” said Mohammed Chahim, a Dutch member of the European Parliament (MEP) who is one of the lead negotiators on Fit for 55, when asked if the talks could be derailed by political pressure.

Mr. Chahim, vice-president of the Socialists and Democrats party, nevertheless expressed optimism that building long-term energy self-reliance will trump ideological differences or squabbles.

“Whether you’re a left-wing or right-wing government, everyone likes to be strategically autonomous,” he said. “The only way to get rid of our fossil-fuel dependency is to invest in sustainability. And of course to use energy much more efficiently.”

Concern at the moment, though, seems to be less about Fit for 55 being abandoned altogether than about allowing it to get bogged down in debates that delay its passage.

That fear is being voiced by European industries that need to transition their operations to be more sustainable but have for years looked for clarity on what the green-deal policies will demand.

Erika Mink, the Brussels-based head of governmental and regulatory affairs for German steel giant Thyssenkrupp AG, insists that industry is ready to invest in decarbonization, even with soaring energy costs eating into financial resources. “But risks are rising, despite government financial support, because critical regulatory framework conditions remain unresolved,” she said.

Daniel Fraile, the chief policy officer for the industry association Hydrogen Europe, made a similar point. Various sectors, including steel, are counting on his members’ product – specifically green hydrogen, produced with renewable electricity – to replace fossil fuels. But they’re waiting for Fit for 55 legislation to clarify what exactly qualifies as “green.”

It’s not easy to decipher how close legislators are to providing all the answers, given the EU’s byzantine policy process.

Three different branches – the European Parliament, which is directly elected by voters in each country, the European Commission, which functions as a cabinet, and the European Council, which features heads of state – each land on their preferred versions of the policies. Then they have a “trialogue” to hash out compromises, which is more or less the current stage.

But it’s possible to get some sense from insiders here of the sticking points – the biggest of which seem to involve carbon pricing.

One of them, which the Canadian government is tracking as it contemplates going the same route, is the introduction of a carbon border adjustment mechanism (CBAM) – a tariff on carbon-intensive imports, so that trade-exposed sectors such as steel, cement and fertilizer can be fully subject to the EU’s cap-and-trade industrial carbon-pricing system, rather than protecting them by effectively exempting many of their emissions, as happens now.

Mostly, the European Parliament seems to want to move more aggressively on CBAMs than the other branches, partly by covering more sectors (including chemicals and plastics). It also wants a faster timeline for phasing out free allowances for industry, the method for the current exemptions, while industry lobbyists cite the surge in energy costs as a reason to slow it down.

Because CBAMs are novel and untested – and have ample potential for international trade disputes – there is also much wrangling involving precise language, such as how exactly to monitor carbon intensity.

That has even CBAMs’ strongest advocates pushing back a bit on the pressure to move as quickly as possible.

“We’re not just finalizing it to have a piece of legislation that does not work,” said Mr. Chahim, the parliament’s lead negotiator for the tariffs. “Because that would be the beginning of the end of CBAMs.”

Another pricing proposal might be even more contentious. While the EU’s carbon market currently covers only industrial emitters and the power sector, the plan is to set up a second system to price emissions from road transportation and the heating of buildings.

Here, too, there are differences among the different branches about how aggressively to move and how to account for comparable existing systems in some member states. More fundamentally, this is one policy that skeptical countries (particularly Poland) have actively pushed back against altogether.

Conversely, to advocates such as Matthias Buck – the European director of the influential climate non-profit Agora Energiewende – the new secondary pricing system is one of the most essential components of the entire package. Mr. Buck said that’s especially true because its revenues are supposed to go to the EU Social Climate Fund – another Fit for 55 component meant to provide direct income supports to economically vulnerable Europeans and fund investments that will lower energy costs (such as heat pumps) for those households.

In other words, that fund could be pivotal to maintaining unity in the future, but only if it survives the disunity engendered by its funding mechanism.

If that’s not enough to wade through, there are also all the binding transitional targets that are being set.

That means, for instance, increasing the EU-wide requirement that 32 per cent of all energy be produced from renewable sources by 2030 to somewhere between 40 and 45 per cent, while also setting sector- and country-specific renewable demands and hammering out what does or doesn’t qualify as renewable.

It’s a similar story with requirements for energy-efficiency upgrades, which seem to be headed toward roughly doubling current expectations, but with lots of fine print to be worked out.

And then there are other areas where the EU is trying to break new ground, such as requiring a share of aviation fuels to be sustainable – though again, precisely how fast that will happen remains in question.

All this is so daunting to contemplate, let alone execute, that it’s prompting calls for narrowing the focus for now.

“If you look at the green deal, it’s I don’t know how many legislative pieces,” said Ms. Mink, the Thyssenkrupp lobbyist. “Especially now with the Russia situation, the EU should limit initiatives to what’s absolutely essential to get the energy, mobility and industrial transitions going.”

Getting just some of Fit for 55′s most ambitious planks through all those levels of a continental government, representing so many different countries, would indeed be an impressive accomplishment when you consider that individual nations – Canada among them – struggle to get comparable domestic agreement.

But for now, the prevailing view seems to be that the war justifies going as big as possible, as common cause against Russia strengthens the case for changing the way just about everything on this continent is powered.

And few are looking to dwell on how quickly that moment could pass, least of all representatives of countries liable to become scapegoats if Europe’s brave plunge into a clean-energy future turns acrimonious.

“If I look at Fit for 55, if I look at REPowerEU, I actually think we’re closer than we’ve been for a long time,” said Jennifer Morgan, who serves as Germany’s international climate ambassador.

“I don’t see a fracturing. I actually see a greater unity.”