Business Climate Change Economy Energy Energy Crisis Environment Europe European Commission European Union Financial Living Crisis News World News

Europe Tilts to the Right

The heat wave plaguing Europe underscores the urgency of the climate crisis. But that won’t necessarily translate to a popular embrace of policies that affect household budgets or interfere with voters’ day-to-day lives. As right-wing politicians gain momentum across the continent, they are exploiting popular sentiment — and policy vulnerabilities — on issues such as a proposed mandatory switch from gas boilers to heat pumps in Germany, rather than disputing the need to address climate change. More broadly, the political shift could lead to greater support for technologies like nuclear power and carbon capture and storage (CCS) that more centrist and progressive parties tend to eschew, potentially making the road to climate targets less rigid.

Costs, Technology in Focus

Germany’s far-right and anti-immigration AfD, for one, made inroads in recent local elections and rose nationally in the polls partly on the back of the Olaf Scholz government’s residential heat pump plan, which required any newly installed heating system to be at least 65% fueled by renewables from Jan. 1, 2024. Voters balked at the steep costs and short timeframe, with the tabloid press dubbing it the “heating hammer.” The AfD called for a return to cheap Russian gas, and even part of Scholz’s governing coalition, the pro-business FDP, opposed the plan. A compromise deal for a longer gas boiler phaseout, with municipalities also taking a bigger role, should take the steam out of the debate ahead of a parliamentary vote in September. 

In Italy, Giorgia Meloni’s right-wing government has made similar noises about the EU’s promotion of green homes and end to internal combustion engine (ICE) vehicle sales from 2035. She has called for a more “gradual approach,” while making clear that her government is not made up of “dangerous climate deniers” and refraining from gumming up wider EU climate legislation. Sweden (since October 2022) and Finland (since June 2023) are also governed by coalitions involving right-wing parties. This had limited impact on Sweden’s presidency of the European Council in the first half of this year, but did translate into a shift in domestic policy. The government in June changed its legal commitment from adopting 100% renewable power by 2040 to 100% “fossil-free” power, thus leaving the door open for nuclear power. That echoes early positioning by Germany’s FDP around openness to CCS.

Attention is now switching to Spain, which started a six-month European Council presidency Jul. 1 and faces national elections on Jul. 23 that could see the conservative People’s Party (PP) team up with the far-right Vox to govern. Vox has blasted the “climate fanaticism” and “climate religion” imposed by elites and the West. But the party’s appeal is rooted mainly in its socially conservative, anti-separatist and anti-immigration policies — even if long-term consensus is that tackling climate change helps address climate migration — and the PP’s platform largely promises continuity on Spain’s renewables and green hydrogen buildout. Spain’s European Council presidency comes at a critical time, however, as climate advocates seek to lock in unfinished business ahead of European parliamentary elections in July 2024.

Transition Targets Intact

A go-slow on some of the more contentious aspects of the low-carbon transition would not signal a death knell for the EU’s decarbonization targets. In the near term, faster progress on more established areas, such as the buildout of renewable power, can compensate for slower progress elsewhere, such as in home heating — as long as overall targets are met. Also, once set on course, EU policy is very difficult to alter, even where there is general consensus that it should be done — as the nearly decade-long reform of the Emissions Trading System has shown.

Differences within the EU are also nothing new: That is how the union works, with each country pushing its interests and playing to its strengths. On energy, that typically means France backing nuclear power, Spain solar and Denmark wind, as Italy seeks to become a gas hub. These preferences were evident in the pushback over outstanding pieces of the EU’s 2021 “Fit for 55” legislative package, with France insisting on a role for nuclear power under the accelerated renewables target of 42.5% by 2030. Germany similarly clinched an exemption to the 2035 ICE sales ban for vehicles that run on e-fuels. 

Within the European Parliament, recent pushback from Manfred Weber’s center-right EPP bloc to the Green Deal’s Nature Directive — which seeks to protect biodiversity but was criticized for compromising rural livelihoods and food security — grabbed headlines as it put European Commission President Ursula von der Leyen, the deal’s architect and a fellow EPP member, in a tight spot. The directive, which does not directly impact the EU’s decarbonization agenda, was narrowly approved with some changes. 

What to Watch 

France and Belgium have called for a regulatory pause on non-climate-related environmental policies, to allow industry to catch up and plan ahead. Climate policy initiatives and legislation have piled up since Russia’s invasion of Ukraine, on top of 2021’s Fit for 55 package. 

Member states are also beginning to submit their drafts of updated — and more ambitious, as per European Commission 2022 guidance — National Energy and Climate Plans through 2030. In pushing this, the EU appears to enjoy broad support. A Standard Eurobarometer survey of 26,425 EU citizens in May-June showed that 85% believe the EU should continue to invest massively in renewables and 79% agree that, in the long run, renewable energy can limit the cost of energy. A survey in Germany by the Helmholtz Centre Potsdam likewise found that 68% strongly support the low-carbon transition despite uncertainties, although 53% of respondents were frustrated by the way it has been implemented politically — more so than high costs.

While politicians and investors largely continue to push hard, Europe’s renewables buildout stuttered in 2022 in the face of market interventions aimed at capping energy prices and supply chain pressures. But the International Energy Agency sees capital cost pressures in European solar and wind easing in 2023. The European Investment Bank this month also boosted funds for REPowerEU projects aimed at ending dependence on fossil fuel imports from €30 billion to €45 billion — with the aim of mobilizing over €150 billion in funds by 2027. European financial institutions are meanwhile sticking to net-zero targets despite fallout from the Ukraine crisis, and continue to tighten lending standards on ESG grounds.

Source: Energy Intelligence