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Network News • 05-10-2023

Is the engine to drive a Green deal sputtering?

Author: George Mangion - Senior Partner at PKF Malta
Published on Business Today: 5th October 2023

In 1992, the EU proposed a tax on energy products based on their carbon emissions intensity, but member states did not reach unanimity and the proposal failed.

In 2003, the EU adopted a non-fiscal market-based instrument, the emissions trading scheme ('ETS'), which became its main instrument to mitigate climate change. Thanks to its non-fiscal nature, the ETS was adopted under qualified majority voting rules. In 2011, the EU Commission made a second attempt to align the taxation of energy products with its climate agenda but, again, its proposal failed due to a lack of consensus among member states.

Von der Leyen’s recent attempt, now seems to follow a similar logic as these past proposals.  Curated lobbying succeeded to persuade all 27 Member States to vote for turning the EU into the first climate neutral continent by 2050.  To get there, they pledged to reduce emissions by at least 55% by 2030, compared to 1990 levels. This will create new opportunities for innovation and investment and Green jobs.  The Commission is also proposing carbon pricing for the aviation sector, which benefited from an exception until now.  It is also proposing to promote sustainable aviation fuels – with an obligation for planes to take on sustainable blended fuels for all departures from EU airports.

To ensure a fair contribution from the maritime sector to the effort to decarbonise, the Commission proposes to extend carbon pricing to this sector. The Commission did also set targets for major ports to serve vessels with onshore power, (Malta started this year implementing this facility in its harbours).  The scheme reduces the use of polluting fuels that also harm local air quality.  Read the 24-page document styled Green Deal and it draws a litany of vows to transform Europe into a vast economy.

Many hoped this can both prosper and prioritise the health of the planet. The dream covers everything from housing and food to biodiversity, batteries, decarbonised steel, air pollution and, crucially, how Europe will spread its vision beyond its borders to the wider world. “Our goal,” declared Mrs von der Leyen, “is to reconcile the economy with the planet”. Parliament finally adopted the EU Climate Law on 24 June 2021, which makes legally binding a target of reducing emissions 55% by 2030 and climate neutrality by 2050.

On paper, this should allow targets to be more easily applied to legislation and create benefits such as cleaner air, water and soil; reduced energy bill; renovated homes; better public transport and more charging stations for e-cars; less waste; healthier food and better health for current and future generations - in short a Utopia.

Malta has been a laggard in many aspects and only last month has issued a discussion paper on offshore sites identified in its Exclusive Economic Zone.  The energy minister had a disastrous summer with complaints about power outages for long hours in practically every corner of the islands. Officially, this was blamed on excessive heat which according to Enemalta CEO, had rendered underground cables extremely hot. To restore power, engineers were digging large tracts of roads to replace cables, so as to restore power.

Aside from pitiful power blackouts, the lyrics of a Green deal sounds wonderful but smaller countries cannot afford to upgrade their systems unless much of the capital comes from private investors.  One way, they will be encouraged to pitch in, is with new financial regulations and incentive tax provisions (as is the case in the USA).  On December 5th, EU negotiators struck a provisional agreement on what financial products are deemed “green”.  With the shift to green transport, Europe can create a market open for world leading companies.  By working with international partners, such pioneers can triumph with a reduction in emissions, ambitiously also to include maritime transport and aviation around the world.

Another initiative is the REPowerEU Plan which was launched in May 2022.  REPowerEU is helping the EU save energy, produce clean energy and diversify energy supplies.  REPowerEU, when fully in force will safeguard EU citizens and businesses from energy shortages, support Ukraine by weakening Russia's war chest, and accelerate the transition to clean energy. On paper, Europe is now better prepared and better united than ever.

Gas prices in Europe are lower today than before Russia’s invasion of Ukraine, thanks in part to the coordinated European response under REPowerEU.  The plan hopes to speed up the green transition and promote massive investment in renewable energy.  Over the last year, Europe collectively managed to increase production and capacity.  While opinion polls suggest that most European citizens are worried about the effects of climate change on their lives, they are also concerned about the costs of changing course to a more sustainable energy scenario and the extra tax needed to finance the green transition.

Thus, recently European poli¬ticians are getting cold feet about implementing the Green Deal strategy that was so widely supported in 2019.  In Germany, France, Spain and the UK, centre-right parties resort to a political backlash against environmental concerns.  Quoting Central and Eastern European countries with carbon-intensive economies, such as Poland and Hungary, these were reluctant to sign up, arguing that they could not go as far as their Western partners.

In recent weeks, progress has become more hesitant, and its pace has been called into question.  French President Emmanuel Macron, launched the offensive on May, by calling for a "regulatory pause".  In the same vein, another liberal, Belgian Prime Minister Alexander De Croo, proposed "pressing the pause button" on biodiversity-related issues.

In conclusion, Malta seems to have been fixated in its political credo to replace heavy fuel oil by LNG for its electricity generation but to go slow on renewables.  Over the past decade, the State utility has invested in just one controversial onshore wind farm located in Montenegro hills. Perhaps, the wind captured in Montenegro will turn our fortunes in the direction to attract foreign investment to build a battery of floating PV panels and wind farms - bold enough to produce both electricity and hydrogen via electrolysis.

Instead of ruining the planet, Malta could start earning export revenue and repaying debt.

Author: George Mangion - Senior Partner at PKF Malta
Published on Business Today: 5th October 2023

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