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The EU is preparing to sell more carbon credits to pay for the Russian gas phase-out

Brussels wants to raise €20 billion to finance the EU’s phase-out of Russian energy by selling surplus CO2 emission allowances – a move that risks hitting the bloc’s climate targets by making fossil fuels cheaper to burn.

The European Commission is considering auctioning off part of a stock of emissions trading allowances, EU officials and diplomats told the Financial Times. The permits allow their users to emit more carbon.

The Commission has a plan for Europe to invest around €200 billion by the end of the decade to try to break its dependency on Russian energy by investing in Russia new infrastructure and alternative supplies.

However, an effect of bringing more allowances to market would lower the carbon price, which will be controversial in some EU member states because it would reduce the cost of using coal, oil and gas. That would meet the emission reduction targets in Europe’s so-called Fit for 55 plan.

“Flooding the market with ETS allowances will only increase emissions and make the Fit for 55 targets even harder to achieve. This is bad climate policy,” said an EU diplomat.

Brussels’ energy plan RepowerEU, due to be released on Wednesday and subject to change, says renewable energy is the best way to fight and achieve climate change energy independence but that the EU will also need new sources of fossil fuels to reduce its dependence on Russia.

The Commission’s strategy will also include measures to save energy, diversify fuel supplies from Russia and encourage investment in clean energy as part of a quest for greater self-sufficiency.

The EU wants to phase out Russian fossil fuels by 2027, but the plan is proving politically divisive and difficult to engineer. Efforts to impose an oil embargo on Russia have stalled because member states are unable to agree. Landlocked countries like Hungary want more time to lower their demand for Russian oil.

The Commission’s plan envisages selling between 200 and 250 million ETS allowances from a so-called Market Stability Reserve. The reserve has grown since the introduction of the ETS in 2009 because renewable energy was deployed faster than expected and slow growth dampened industrial activity and hence emissions.

The Commission did not sell the allowances so as not to depress emissions prices and now has 2.6 billion in reserve.

Brussels believes that replacing Russian gas will require a temporary use of alternatives such as LNG and coal, which have a higher carbon footprint. Brussels says it can still meet its target of reducing emissions by 55 percent from 1990 levels by 2030.

“You can rest assured that when this commission proposes such a measure, it will do so after a very thorough analysis and in full compliance with the necessary emission reductions set out in the climate law,” said a commission official.

Some member states could urge the Commission to ensure that fewer allowances are issued in the future to ensure that binding climate targets are met.

Luxembourg’s Energy Minister Claude Turmes said: “We cannot go back to more fossil fuels. You have to make sure we don’t cut the overall carbon budget by 2030.

“We should use the current crisis to accelerate our work on renewable energy and energy efficiency to keep our climate goals on track.”

Matthias Buck, European director of the Agora Energiewende action group, said the plan would result in more emissions. “These are emissions that would never have happened without this plan. This is good news for Polish and German coal-fired power plants, which can operate longer.”

The commission declined to comment.

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https://www.ft.com/content/be8d95cc-273a-43b8-b6ab-e9f95685ddc7 The EU is preparing to sell more carbon credits to pay for the Russian gas phase-out

Adam Bradshaw

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