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Ending the energy price crisis in CEE: short-sightedness on energy may prove costly in the long run

Russia’s aggression in Ukraine has pushed Europe and the globe into a fully new geopolitical context, which is having an effect on both the energy and climate landscape. Yet, prior to Russia’s invasion, energy prices in Europe had already been rising due to the gas crisis. For Central Eastern Europe (CEE), solidarity and the social benefits of the energy transition have always been crucial propellers of ambitious climate action. The region has recently faced the highest rates of inflation among the EU countries (next to the Baltics), being affected most by the cost of living crisis. In addition, given their geographic proximity, but also historical background and cultural links, CEE Member States’ politics are intrinsically linked to the developments in Russia and Ukraine and feeling more of the direct impacts. Yet, they also demonstrate solidarity by supporting Ukrainian society more compared to the rest of Europe.

The makeshift solutions

In the meantime, short-term emergency interventions around electricity and gas prices implemented by CEE governments have been a welcomed lifeline for many households, as many communities and small businesses were struggling already before this winter. Retail price capping introduced in Czechia, Hungary (in 2013 already) and Poland, where there is also a consumption limit accompanied by a discount for saving energy, provided citizens with a basic shield as any possible sharp energy price increase will not fall directly on them. Yet, these lifelines – in principle aimed at protecting people from falling into energy poverty – come at a significant cost: they are putting a major strain on economies and state budgets which will not sustain them for long.

Yet, price capping also does not structurally ensure long-term protection against energy poverty. In fact, this way of spending money isn’t efficient at all: governments are not aware of who is benefiting from those measures most and whether these are indeed vulnerable citizens and shielding all consumers indiscriminately against fossil gas prices blocks a demand-side reduction reaction – thus keeps people locked into expensive gas without realising it. Moreover, price capping typically doesn’t differentiate across target groups and rather can benefit wealthier people (those who consume more gain more ‘subsidy’ via the capped price) as opposed to the most vulnerable households.

Beyond the economic aspect, price capping actually doesn’t address a major root cause of the cost of living crisis: the high demand for expensive fossil fuels. It does little to encourage homes, communities and businesses to increase their energy savings, further prolonging their consumption of fossil fuels and placing a further burden on natural resources and the climate.

From lifelines to longevity

Addressing the CEE countries’ dependency on fossil fuels requires more structural, long-term solutions that can lead to a decrease in overall energy demand. The most obvious is improving the efficiency of energy use as well as sufficiency and other saving measures while increasing the share of the renewables in the energy mix, which could help produce energy at a lower cost.

These structural solutions accompanied by a broad public debate must start now if we don’t want to land with a choice of populism or injustice. Given that new taxation for buildings and road transport sectors should enter into force in 2027 and will thus need by the governments to be translated into national laws, this solidarity needs to urgently happen.

Inequalities must be reduced starting with a fair and balanced distribution of the costs. Consumers would need to understand the true cost of energy and get a chance to both produce the energy and manage their consumption. This would mean that we need to start with basic definitions (and indicators) for vulnerable consumers and energy poverty and rules, such as energy disconnection bans and social discounts to protect vulnerable customers and households at risk of energy poverty. Governments should work to introduce a definition of energy poverty in line with the EU definition (Social Climate Fund) and identify the social groups falling into this category. The ongoing Electricity Market Design reform as well as the Energy Performance in Buildings Directive (EPBD), which will enter the final stage of negotiations at the EU level soon, are key policy instruments that the EU can use to motivate and support its Member States to develop such measures.

Repower for the people

Along with these social measures, there is an urgent need for a sustainable renewable energy transition that involves people at its heart. Governments need to draw out a clear roadmap for increasing the deployment of renewable technologies and increasing energy savings across different sectors and in people’s homes. Households and communities can have a major role to play in the energy transition. Ambitious programs that promote the growth of energy communities and prosumers should be brought forward such as those that combine solar rooftops with heat pumps, and an enabling regulatory framework such as faster permitting procedures for these technologies. The installation of these renewable technologies should be combined with one-step deep renovations which can drastically reduce energy demand in buildings which are major energy consumers. These can all be addressed within the EPBD framework.

Available funding such as the Recovery and Resilience Fund and the Social Climate Fund should be used to support these programs, targeting the most vulnerable homes first. A debate on solidarity is needed on how to distribute costs and support in Central and Eastern European countries as climate and energy are not just “silo” policies. Moreover, the phase-out of fossil fuel subsidies needs to be accelerated as they are a major obstacle to delivering a fast energy transition. These subsidies further perpetuate European economies’ dependence on imported fossil gas, oil and coal.

Digging up the fossil past

The Bulgarian government announced last year that no fossil gas projects will be funded by the RRF. However, like other CEE countries, Bulgaria is making a U-turn in its decarbonisation commitments. False arguments have emerged that domestic sources such as coal are needed, reinforcing resource nationalism as a means to boost energy security. Last year in Czechia, the energy prices crisis led to the reactivation of coal mines while in Hungary, unit II of Matra power plants restarted last year, with its lifetime extension until the end of 2029 and the expansion of lignite exploration being examined. In Romania, this has resulted in a comeback for nine mega hydropower projects in protected areas, which risk having a disastrous impact on the water ecosystems.

Going backwards to outdated, false solutions, structural coal revival would lock these countries into expensive and non-sustainable energy sources, which would also negatively affect the competitiveness of their economies. Adding health and social impacts (potential de-commitment of the Just Transition Fund resources, granted to coal regions on the basis of coal phase-out commitments) would mean that such rushed decisions can have very high costs.

Moreover, barriers to the development of renewable energy are significantly hindering any attempt at a successful energy transition. The controversial “10H” regulation in Poland (even if just recently reformed to replace the “10H rule” with a distance of 700 metres) which limits the suitable landscape available for onshore wind projects will have a detrimental impact on Polish energy security. In Hungary’s case, the country has taken a major step back with its recent ban introduced on new grid connections for solar installations, jeopardising both its national and the EU’s climate and energy goals.

Enhancing Central Eastern Europe’s energy future

There are some positive signals coming from CEE countries in regard to weaning off fossil fuels. In Czechia, a draft amendment to the law has been praised by civil society as a good implementation of renewable energy communities and will hopefully come into force in 2024 after many delays. In Poland, there is a massive uptake in heat pumps/insulation programs. In the short-term, there has been a “housing allowance” introduced in Czechia (that needs a “financial update”, more public awareness, and simplified procedures) or Polish “shield allowance” for families (based on income, type of heating and the number of people in the household).

Yet, more can be done. Targeted and differentiated incentives to renovate homes or deploy particular renewable energy sources in various forms should put our societies on a pathway towards climate neutrality in a socially just and participatory way. RRF and REPowerEU create an opportunity for complex support schemes to increase the energy performance of buildings or introduce comprehensive reforms to speed up RES development, with a focus on overcoming technical and legislative barriers, transparent permitting processes for grid connection and putting community renewable energy in the hands of the people for independence from the expensive grid supply. Economic, social and environmental co-benefits of energy efficiency and energy savings measures should be discussed and promoted through nationwide awareness-raising campaigns.

Last winter was indeed harsh for many families throughout the CEE region. Governments must do their best to ensure the next winter is much better. Short-term interventions are helping to some extent, but are failing to address the underlying cause of this energy price crisis; the dependence of economies on fossil fuels. Overall, to address the current ‘trilemma’ that the continent of Europe faces; rising energy costs, energy insecurity and a looming climate crisis, there is an urgent need for a decentralised, sustainable energy system that promotes solidarity among citizens while protecting them from being locked-in to using expensive and dangerous fossil fuels.

This opinion editorial was written by: Kasia Ugryn, Marta Anczewska and James O’Connor from CAN Europe. With contributions of Jaroslav Bican, Greenpeace Czechia; Teodóra Dönsz-Kovács, MTVSZ, Hungary; Liliana Rastocka, Slovak Climate Coalition; and Anna-Maria Seman, WWF CEE.

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