EU plan seeks to capitalize on record drop in subsidies for fossil fuel use
Published on Tuesday, 15 December 2020
An Historic Opportunity
The saying goes that every cloud has a silver lining. If that is the case for the Covid-19 pandemic, then the silver lining is a record 43% drop in subsidies for fossil fuel consumption this year to the lowest level since 2007, when the International Energy Agency began tracking the data.
The $180 billion plunge in subsidies this year provides an “historic opportunity” to phase out fossil fuel consumption subsidies altogether, according to the IEA. Periods of low fuel prices provide an opening to impose the sort of price reforms needed for a durable reduction in subsidies because the lower cost softens the impact on prices and on inflation.
EU Energy Transition Strategy
In September, the European Commission sought to seize the historic opportunity presented with its energy transitionstrategyfor reducing greenhouse gas emissions in the region by at least 55% by 2030, putting it on track to reaching climate neutrality by 2050. The Commission uses 1990 levels as its baseline.
At the same time, the bloc’s executive arm adopted an assessment of Member States’ National Energy and Climate Plans for 2021-2030, showing that it is on course to beat its current target of a 40% reduction for 2030 thanks to the “success story of the European renewables sector.”
NextGenerationEU Recovery Fund
Central to the EU’s new, bolder energy transition strategy is the 750 billion-euro NextGenerationEU recovery fund. This is designed to stimulate investment in a resource-efficient economy and promote innovation in clean technology that will advance the energy transition. It also called for at least 30% of its multiannual budget to be used for climate-relevant spending.
Because CO2 emissions are such a significant contributor to global warming, the Commission suggested that Member States should combine recovery fund investments with revenue from carbon pricing to reduce other taxes that have a distortionary effect, taking advantage and gaining momentum from the move away from fossil fuels that has resulted from the pandemic.
That success story in European renewables is the story of Enel Group, which has more than 46 GW of renewable managed capacity in 28 countries across five continents. That puts it among the world’s biggest producers of renewable energy. Moreover, decarbonization is at the heart of the Rome-based company’s strategy – indeed, the plan is titled “Sustainability is Value.”
The commitment of Enel X and the Enel Group to support the transition is shown by the fact that fully 50% of the company’s 28.7 billion-euro 2020-2022 Strategic Plan, which was unveiled in February, will be invested in decarbonization and electrification of consumption. Under the plan, the company will add a total of 14.1 GW of renewable capacity by the end of 2022, meaning renewables will make up 60% of installed capacity, bringing a full-scale transition to renewable energy a step closer.
Sustainability means Value
The plan’s identification of sustainability with value is underlined by its insistence that every investment should bring closer the attainment of the Sustainable Development Goals defined in the United Nations 2030 Agenda. The focus is on SDG7 (“Affordable and Clean Energy”), SDG9 (“Industry, Innovation and Infrastructure”), SDG11 (“Sustainable Cities and Communities”) and SDG13 (“Climate Action”). Under the plan, about 95% of planned expenditure in the next three-year cycle will be invested in projects that bring us closer to achieving those four Goals.
The strategic plan is of a piece with Enel’s activities in furthering progress towards the SDG Goals. It is a Global Compact LEADcompany, one of a group that is identified annually for high levels of engagement as a participant in the UN Global Compact. The Compact brings together committed companies, experts and stakeholders to generate and implement corporate sustainability practices, aiming to inspire businesses around the world to take up sustainability solutions.
As part of the Compact, Enel CFO Alberto De Paoli, co-chair of the CFO Taskforce, in September took part in the launch of the CFO Principles for Integrated DSG Investments and Finance, a set of values that indicate how companies can align their finance strategies to progress towards the UN Goals.