The energy crisis caused by the invasion of Ukraine has focused the attention of EU Member States and European institutions, forcing them to reevaluate energy security and the clean energy transition in the region. Where Europe gets its energy from and how much it pays for it is an increasingly pressing concern. Prioritizing a ‘just transition’ has been voiced by politicians at the highest level, including the European Commission’s Vice President Frans Timmermans.
Europe’s rapid response to the energy crisis
In March, EU leaders agreed to phase out dependency on Russian gas, oil and coal imports as soon as possible. Soon after, the European Commission presented a Communication on Security of supply and affordable energy prices, complementing REPowerEU. And, in early May, the European Commission proposed an all-out ban on Russian oil imports. More general measures have also been taken on the technical side of energy supply, including accelerating the clean energy transition, topping up gas stores and upgrading and extending LNG infrastructure.
However, social measures are now also required to support those who are most impacted by the energy crisis.
According to the World Bank, energy prices are expected to rise more than 50% in 2022 before easing in 2023 and 2024, impacting many people’s lives. According to a 2020 study, around 34 million people in the EU already experience energy poverty. Many of them may be unable to keep up with energy bills and run the risk of supply disconnections. Some families may face a choice between buying food or heating their homes.
Low-income households are the hardest hit, particularly those in the poorest Member States, as they simply don’t have the means to pay for higher energy costs for heating, cooling, and transport. These are also the households who have the fewest resources to invest in the renovations that would reduce their energy bills in the long term, such as installing heat pumps or upgrading to energy efficient windows. More often than not, these households are single-parent, elderly or people of color.
So what can be done to support them and to maintain the momentum behind the just transition to clean energy?
We must ensure that this transition is just, or there just will be no transition... this is extremely important, because if you look at the political spectrum across the European Union, if people have the impression they will be left behind in this transition, they will prevent this transition from happening. So it’s in everyone’s interest that we leave nobody behind.
Supporting a just transition
Energy prices are not entirely under the control of Member States and European institutions. They are a product of complex market forces and the geopolitical situation. Yet, the impact of those rising prices are being managed.
Many people now require immediate financial support to help them with their high energy bills—something we are already seeing in many Member States. At the time of publication, almost all Member States have introduced direct transfers to vulnerable households, and many have reduced tax—such as VAT—on energy. However, this short-term action can speed up the green transition if combined with longer-term measures, such as grants for renovations to increase the energy efficiency of homes. These will help households—in particular, low-income ones - to lower their energy use in the long term.
Social measures to ensure security of supply and affordable prices for consumers
What then is being done to help those most impacted by the energy price rises and maintain momentum behind the transition to clean energy?
Across the EU, 25% of the revenue generated by the proposed EU ETS 2.0 will be invested into the Social Climate Fund, complemented by national contributions from Member States’ auction revenues from the emissions trading for building and road transport fuels. The Fund would thereby mobilize €144.4 billion for a socially fair transition. This will be used to help the most vulnerable members of society pay for higher energy prices in the road transport and building sectors resulting from the expansion of the ETS. There are also a number of other EU finance schemes that will help enable a just transition, including the EU Modernization Fund, EIB/EBRD, EFRD, the Cohesion Fund, the European Social Fund, the Just Transition Fund and the Recovery and Resilience Facility (RRF).
Countries are already identifying creative ways to fund social, environmental and climate action, including using ETS revenues or introducing financial support schemes to address high energy prices. One successful example is Germany. Its International Climate Initiative has provided funding for NGOs for climate and biodiversity projects since 2008.
Spain currently ranks sixth for energy poverty in the EU and has seen the steepest increase in energy poverty in recent years. In March, Spain and Portugal obtained permission from the EU to apply unique measures to lower electricity prices. This was based on their status as an "energy island", as the amount of electricity connecting Spain with northern Europe is only 2.8%. The ultimate aim is to introduce price caps to diminish the role of gas as price-setter in the electricity market.
Driving the renovation wave
We are also seeing a plethora of funding schemes that aim to drive the "renovation wave", the envisaged sharp increase in retrofitting buildings to make them more sustainable and reduce energy use. In France, the Hauts-de-France Pass Renovation program offers households an advance on energy efficiency renovation and technical advice on renovation projects. Households only repay the loan after the renovation is completed, with monthly payments less or equal to the energy savings resulting from the renovation. This has been funded by ERFD and ELENA Funds.
In Gent, Belgium, grants of up to €30,000 are being offered to "captive owners" to make energy efficiency renovations and refurbishments. These homeowners have purchased housing because it was cheaper than renting, and the housing is basic which leads to high energy consumption. The homeowner only has to repay the grant if they resell or rent the property.
The Light for Romania program identified households, public schools and churches without electricity and installed around 300 photovoltaic systems, funded through corporate and individual donations. Another renewable energy solution, Barrio Solar in Zaragoza, Spain, installed a photovoltaic system on the roof of a public building with funding from Fundacion EDP and Schneider Electric Foundation. Households and businesses within half a kilometer can also use the electricity, saving around 30% of energy costs. 10% of the energy generated is also earmarked for households in energy poverty and is provided for free.
Today, the European Commission and Member States are focused on addressing the deepening of social inequalities caused by rising energy prices in a more systemic and comprehensive manner. The energy crisis caused by the Ukraine conflict demonstrates how public acceptance of broader climate policies such as Fit for 55 go hand in hand with the implementation of social support schemes.
On June 28, following the proposal from the European Commission and the vote in the Parliament, the Council of the EU agreed to the ETS 2.0 for buildings and road transport, the subsequent investment in the Social Climate Fund and obligations for Member States to the social climate plan, which contains a set of measures and investments to address the impact of carbon pricing on vulnerable citizens. This is an important step towards the kind of social measures and support for a just transition across Europe.