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By JAKOB HANKE VELA
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MINISTERS PICK UP WHERE LEADERS LEFT OFF: Energy ministers meeting in Luxembourg today will pick up the can their leaders kicked their way last Friday during the European Council. The EU’s leaders agreed to look at everything from dynamic gas price caps (aka “corridors”) to uncoupling electricity prices from gas — and now it’s up to their ministers to come up with a way out of the impasse.
SCOOP: COMMISSION FLOATS NEW PRICING SYSTEM FOR ELECTRICITY. In a paper that ministers will discuss today over lunch, obtained by Playbook, the European Commission proposes a permanent fix to decouple gas from electricity prices. If ministers endorse the proposal, it would amount to the biggest reform of EU electricity markets in decades.
How it works: It’s all about paying a lower price for renewables and nuclear (which have low running costs and are currently making astronomical profits as they charge the same price per MWh as gas-powered stations).
The magic phrase is ‘contracts for difference’ — whereby countries would secure long-term contracts for renewable generation with developers to lock in cheap prices for consumers over long periods, typically 15 years. The contracts are awarded via tendering, meaning the cheapest offer wins the bid. It’s a scheme the U.K. has already endorsed to tackle inflation, and which Commission President Ursula von der Leyen’s experts believe the EU could quickly copy.
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In the Commission’s words: “Renewables and other types of inframarginal generators (e.g. nuclear) would be remunerated under contracts for difference, independently of the marginal price,” reads the so-called non-paper. “The price of these contracts would typically be established by tendering and will be a direct function of the actual production costs of the relevant technologies. This shift to a remuneration based on contracts for difference can be implemented very swiftly and easily for new capacity.”
KILLING THE IBERIAN MODEL SOFTLY: On the so-called Iberian model proposed by Spain and Portugal, the paper is a masterclass in killing an idea by pretending to endorse it. Reminder: The Iberian mechanism, adopted by Spain and Portugal, lowers electricity prices from all sources by subsidizing the most expensive one, which is gas-powered stations.
How it’ll play out: Ministers will discuss the Iberian model today over lunch — and Brussels’ thinking is clear. Von der Leyen’s experts politely start describing how rolling out the Iberian model could produce net benefits of €13 billion for the entire EU. Sounds good — but also quite meager compared to the €70 billion the Commission claims can be raked in via its levy on surplus profits.
The paper then painfully walks through the pitfalls of rolling out the system EU-wide: Countries would need to prevent leakage of subsidized electricity to non-bloc nations like the U.K. and Switzerland, the experts warn … There’s a risk of increasing consumption of natural gas, which is already scarce … and if that’s not enough to discourage ministers, the Commission’s experts have a coup de grâce: EU countries would also need to tackle redistributional effects within the bloc.
Translation: While Germany produces a lot of electricity via gas, a big chunk of that goes to its neighbor, which is struggling to get its nuclear reactors working again. “The biggest net beneficiary is estimated to be France,” the paper notes.
That’s clearly a death blow. The risk of sending cheap electricity to Britain is one thing. But Germany subsidizing France? Sacré bleu!
To make the system fairer, countries would need to redistribute the subsidy costs in accordance with their consumption, the Commission experts say — before adding that “this could however be difficult to design because lack of reliable statistics and political challenges.”
The message is clear: Rolling out the scheme EU-wide would be a lot of hassle, considering it produces only €13 billion in benefits, the Commission seems to suggest.
Will that end the debate? No. The €13 billion number is questionable — and Playbook won’t be surprised if ministers in favor of the scheme question it. It all hinges on von der Leyen’s experts assuming a very small intervention (gas prices would be capped at €120/MWh, which is way above the current market rate of €60/MWh). But if the intervention is small, the feared distributional effect would also be low.
Reading the ink stains: “The paper is a bit like a Rorschach test,” one EU diplomat told Playbook. “Every member state will read what they want, depending on their emotional disposition.”
Bottom line: This would all be quite amusing, if in the meantime Europeans and entire economic sectors weren’t suffering. More than a year has passed since countries first rang the alarm bell over high energy prices. During that year, energy companies have continued to rake in record-high profits, while the EU has experienced massive inflation. It’s time to start working on those “long-term” fixes to the market, instead of rolling out ever more subsidies.
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TIME’S UP FOR FOSSIL INVESTORS’ GOLDEN GOOSE: The fossil fuel industry’s biggest weapon against state regulation is cracking, as a succession of EU governments moved to dump the Energy Charter Treaty (ECT) over the past days.
From hero to zero: The 1990s treaty, which allows investors to sue governments via private and secretive arbitration (rather than national or international courts), was designed to protect Western investments in post-Soviet states’ energy systems. Nowadays, it is mostly used by companies to sue governments when green policies hit their profits. The treaty protects hundreds of billions of euros worth of fossil fuel investments in the EU alone.
Abandoning a sinking ship: Green activists have criticized the treaty for years — but now EU governments are joining them, as they realize they need to phase out polluting energies such as coal, which the pact effectively prevents. The Netherlands, Spain, France and Poland have said they will leave the treaty, with Germany, Belgium and Luxembourg also discussing bailing.
A reform process led by the EU sought to end fossil fuel protection in the treaty, but resistance from Japan, Kazakhstan and others meant it could only partially achieve its goal. The Commission is now trying to sell the new text as a victory, but the fact is the treaty still protects dirty energy investments.
Existential questions: POLITICO asked the Energy Charter Treaty’s Secretary-General Guy Lentz whether it would be better for the climate if the pact ceased to exist. “Definitely,” he said, at least for the EU. “But we have this treaty existing, you cannot make as if it is not existing. So what we are making is damage control.”
Rowing back: In a later phone call, Lentz clarified that he had been hasty in this assertion because he had not considered the fact that reforms — negotiated by the EU but yet to be signed off by members countries — would cancel lawsuits within the EU and that the coverage the deal offered to renewable energy investors internationally meant “it would be better to have this for the future.”
Jetten on out: For the Netherlands, it’s a case of twice burned, forever shy. The country has been hit by lawsuits from two German coal operators this year over its attempts to phase out coal. On the Commission’s half-hearted reform of the treaty, Climate and Energy Minister Rob Jetten told Playbook and Climate Correspondent Karl Mathiesen: “We just simply think it’s not good enough.” Ultimately, he said it was important to the Netherlands to take back control. “It is better to leave this treaty and, after 10 years, be rid of it and have more openness and more policy freedom,” Jetten said.
Mass exodus: Jetten said he’ll be cruising the summit in Luxembourg for other willing ECT-iteers. “It would be my preferred scenario that all EU member states will leave the treaty,” he said, insisting the EU would be stronger if it left the pact as a pack. “Countries are asking us for our analysis and our reasons for the decision we took. At the same time, I think there are a lot of EU member states that don’t have a national debate at all on the ECT at the moment, and I’m not quite sure if they will ever have one.”
Further reading by Karl and Sarah Anne Aarup here.
RECONSTRUCTION CONFERENCE: Commission President Ursula von der Leyen is in Berlin today for a conference to secure funds to reconstruct Ukraine after the Russian invasion. Von der Leyen will speak alongside colleagues from Germany, Poland, Ukraine, Switzerland and the U.K. Full curtain-raiser from POLITICO’s Paola Tamma here.
Big talk, where’s the walk? At last week’s European Council summit, von der Leyen announced plans for €18 billion in financial assistance for Ukraine next year — or €1.5 billion each month. But discussions are at an early stage. Meanwhile, €3 billion in financial assistance that the EU has pledged for this year as part of its €9 billion package announced in May is still outstanding
Jourová’s message: Send money now to secure the future. Speaking to POLITICO, Commission Vice President Věra Jourová said it’s important that the EU continues to provide financial assistance to Ukraine. “It’s not easy, and we have to ask our citizens again and again for their blessing for it. But if we do not support Ukraine now, militarily but also financially, it will cost much more in the future.”
On Russia’s non-credible dirty bomb warnings, Jourová had a clear warning: Those in the Kremlin “are masters at blaming others for what they are doing or plan to do themselves. There is a Russian proverb, ‘don’t look into the mirror if you hate your face.’” Russian politicians have perfected the art of deflection, Jourová said. “I don’t believe in effect anything that the Kremlin is producing.”
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UK GETS ITS THIRD PM IN 3 MONTHS TODAY: In a most unlikely of Westminster career comebacks, Rishi Sunak will today become the new U.K. prime minister. Esther Webber explains how we got here, while Eleni Courea takes a look at what the next 100 days look like under Prime Minister Sunak.
EU COUNTRIES STRUGGLE TO INTEGRATE ROMA: The EU Agency for Fundamental Rights (FRA) will today publish a new report on life for Roma in 10 European countries. The report looks at the living conditions of Roma now, compared with the last survey in 2016. Playbook has previewed the paper — here are some of the findings …
Poverty: 80 percent of Roma live in poverty compared to an EU average of 17 percent … Education: 71 percent of young Roma leave the education system early, compared with 10 percent of young people from the general population. … Employment: 43 percent of Roma surveyed were in paid work; the EU average in 2020 was 72 percent … Life expectancy: Roma men and women live nine and 11 fewer years respectively than the general population.
OPINION — COMMISSION SHOULD BACK OFF ON ENCRYPTION: There’s no evidence that the technology exists to allow platforms to comply with the EU’s new regulation requiring internet platforms to detect, report and remove images of child sexual abuse, without undermining end-to-end encryption, argues MEP Markéta Gregorová in this opinion piece for POLITICO.
**POLITICO Live’s Health Care Summit is taking place this week! Join us online this October 27-28 to discuss the most pressing policy issues shaping health care in the EU and beyond. There’s still time to register – click here for more.**
— Transport, Telecommunications and Energy Council (Energy). Arrivals from 8 a.m. Press conference expected 3:15 p.m. Watch.
— Conference on the recovery, reconstruction and modernization of Ukraine held in Berlin. Opening remarks by co-hosts, German Chancellor Olaf Scholz and Commission President Ursula von der Leyen at 9 a.m., followed by keynote address by Ukrainian President Volodymyr Zelenskyy … Scholz and von der Leyen hold press conference at 10:35 a.m. … Closing remarks by Ukrainian Prime Minister Denys Shmyhal, Japanese Prime Minister Fumio Kishida (representing the incoming G7 presidency), Scholz (representing current G7 presidency), Indonesian President Joko Widodo (representing G20 presidency), as well as von der Leyen from 5:45 p.m. Watch.
— European Parliament’s budgetary control committee and Commissioners Valdis Dombrovskis and Paolo Gentiloni discuss the Court of Auditors’ report on the Recovery and Resilience Facility. Kicks off 9 a.m. Watch.
— European Parliament employment and social affairs committee holds hearing on the Uber files, lobbying and workers’ rights. From 2:30 p.m. Watch. Essential primer.
— EU High Representative Josep Borrell in Uruguay and Argentina. Press conference expected 8 p.m. Brussels time.
— Global Youth Leadership Forum — “Europa, un futuro de esperanza.” Opening statement by European Parliament President Roberta Metsola at 11 a.m. Watch.
UKRAINIAN INTERNS AT THE EUROPEAN PARLIAMENT: Three Ukrainian students have now started their internships at the European Parliament, working for a month in the offices of MEPs Witold Jan Waszczykowski, Damian Boeselager and Petras Auštrevičius.
Thanks for helping! “We want to express our gratitude to” those three MEPs “for showing interest in our program and accommodating three Ukrainian interns … and to the European Parliament for providing a stipend,” a representative for the Ukrainian Future Leaders program, which organizes the internships for Ukrainians aged 18-28, told Playbook.
Still time to get involved: MEPs who want to join the program can email Ukrainian Future Leaders here.
DUTCH MEP LEAVES ID GROUP: Dutch MEP Marcel de Graaff has left the far-right Identity & Democracy group in the European Parliament, claiming it is anti-Russian. Details.
BIRTHDAYS: Former MEPs Norbert Erdős and Emilian Pavel; Former MEP and POLITICO 28 alum Olga Sehnalová; Stefano Giustiniani of the U.S. Embassy in Rome.
THANKS TO: Karl Mathiesen, Suzanne Lynch, Sarah Anne Aarup and our producer Grace Stranger.
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