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What EU money can’t buy: Poland’s green energy transition just out of reach


A new Bankwatch study, launched today, looks at how nine central and eastern European countries are set to spend billions of EU funds until 2020 that are meant to transform the carbon-intensive, inefficient energy systems of their countries.

On our blog today, Polish campaigner Julia Krzyzkowska comments on her findings from Poland and its regions. Stay tuned for other countries following this and next week.

Find out more at bankwatch.org/enfants-terribles >>

Set to receive as much as 80 billion euro in total from the different Cohesion Policy Funds until 2020, Poland remains the biggest EU funds beneficiary. It’s hard to overstate the significance of EU-funded investments for the Polish economy.

With increased investments in public infrastructure and support for businesses since joining the Union in 2004, the quality of life of many Polish citizens improved significantly. Poland has become a poster child for macro-economic development, with the economy growing even through the years of the financial crisis. Much of this growth is owed to financial transfers from the European budget, with EU funds amounting to more than 50 per cent of public investments between 2009 and 2013.

Yet spending EU money has not always gone hand in hand with the pursuit of European laws – particularly those regarding climate and energy commitments. According to a 2013 study by Client Earth, only one out of eleven EU climate and energy directives was transposed on time in Poland. While benefitting from billions of euros in financial transfers, Poland has opposed any European attempt at more ambitious climate action, and continued to lend political and financial support to coal-mining and fossil fuel-based energy generation at home.

A Bankwatch analysis launched today of Poland’s (and other countries’) 2014-2020 investment plans for European Regional Development and Cohesion Funds paints a disappointing, though not entirely unexpected picture. Despite the European Commission’s efforts to put environmental sustainability and climate change mitigation at the core of its Cohesion Policy regulations, the situation on the ground is far from ideal, and the current national investment plans for EU funds will rather sustain Poland’s current resource-intensive development model and its heavily coal-dependent economy.

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Climate action in EU Cohesion Policy funding for Poland, 2014-2020 (pdf)
Study chapter | January 26, 2016

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Things (EU) money can’t buy

With an ageing and increasingly obsolete fleet of coal power plants and an energy intensity of the economy that is twice as high as the EU’s average, Poland today faces growing problems with energy security and air pollution caused by both industrial and household fossil fuel energy generation. Billions of euros of European money could be the impulse to replace chimneys with innovative, low-carbon solutions. But for that, we need political will. And equally important, we need clear guidance and careful oversight from the European Union.

Yet as the Bankwatch study shows, Poland’s plans for spending its 80 billion euros favour high-emissions transport over low-carbon solutions, hard infrastructure over natural methods of climate adaptation, and a traditional, centralised fossil fuel-based energy system over smart, distributed solutions where energy efficiency is always put first and citizens can actively participate in shaping the energy market.

Graph: Investment areas of EU Cohesion Policy funds in Poland

Source: Climate’s enfants terribles

The cycling path to low-carbon development

The potential is there. Following the EU-mandated division of funds, the “shift to low-carbon economy” is an investment priority included in each of the 16 regional strategies to receive financing from the European Regional Development Fund. Almost 9 billion euro has been allocated to finance interventions primarily in the sectors of energy and low-emission public transport.

Graph: Allocations under Thematic Objective 4: ‘shift to the low-carbon economy’

Source: Climate’s enfants terribles

There is no doubt that this amount of public financial support will help leverage significant investments – but to move away from fossil fuels, the emphasis should be put clearly on energy efficiency, clean energy technologies and smart distribution. Instead, public transport infrastructure, will consume 45% of total allocations. While recognising the importance of clean public transportation for the development of Polish regions, such division of funds is pitting different priorities against each other, shifting the focus from transforming Poland’s obsolete energy system to purchasing fleets of low-emission buses or tramways. In some regional strategies, paving foot and cycling paths will receive more funding than investments in renewable energy.

More than semantics: low-carbon vs. low-emission

Across all official documents, the Polish translation and equivalent of ‘low-carbon’ is ‘low-emission’ – a move which seems to be indirectly legitimising the continued use of more efficient and less polluting fossil fuels, under the umbrella of sustainable energy solutions. This shift goes deeper, shaping attitudes towards climate-friendly changes in the economy and contributing to Poland’s stubborn reliance on coal.

While the National Action Plan for renewable energy (pdf, pl) estimates that approximately 6.2 GW of additional renewables capacity is necessary for Poland to reach its Europe 2020 renewables target, Polish programming documents aim at approximately only 960 MW of new capacity supported through EU funds. This number is not just unambitious – it can very well be a big missed opportunity for the Polish regions.

Małopolskie and Podkarpackie regions will use their regional funds to directly pay for coal, by offering financial support for replacing old individual coal-burning stoves with new, more efficient and less polluting coal-based installations. The rationale here is the urgent problem of air pollution in those regions. The source of money will be an EU funds investment priority on air protection measures. 40% of the money spent on burning coal in individual stoves will fall under the climate action earmarking.

Residential buildings left out in the cold

The building sector is the single most energy-consuming area of the economy, responsible for approximately 40% of final energy use. The total allocation to energy efficiency in buildings at EUR 2.1 billion is sizeable and significantly higher than the EUR 500 million earmarked for this purpose in the previous period 2007-2013. However, leaving aside the fact that experts estimate that tens of billions are needed for modernising Poland’s housing sector, the arguably biggest potential for energy savings will remain largely untapped even with the 2.1 billion available.

Residential housing is responsible for approximately 30 per cent of all energy consumption of the Polish economy. Despite the potential to achieve significant savings and curb energy poverty through energy efficiency measures in residential houses, Poland allocates only approximately EUR 788 million compared to EUR 1.3 billion for improving energy standards in state and municipality-owned buildings, whose share of energy consumption is no higher than 10 per cent. Even worse, there are no EU funds allocated to retrofit Poland’s five million single-family dwellings, which amount to approximately 80% [pl] of all residential buildings in Poland and house more than 40% of the population.

Graph: Energy efficiency allocations according to type of beneficiary


Source: Climate’s enfants terribles

Based on its comprehensive analysis, the Bankwatch report draws a simple conclusion. Just as money must always follow political decisions to make them reality, even billions of euros in investments will not be enough to bring about the transformation of an energy system without a strong foundation of political commitment to climate action. This commitment is still missing in Poland – and it seems to be one of the few things that money cannot buy – putting the clean energy transition just out of reach.

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Find graphs, other chapters and more at bankwatch.org/enfants-terribles >>

 

Misuse of EU funds holds back Europe’s clean energy transition


This article first appeared on Euractiv.com.

Many hailed the Paris Agreement (pdf) as a turning point in the global efforts to tackle climate change. More than anything, this landmark consensus first and foremost adds urgency to Europe’s responsibility to decarbonise its energy system. Nowhere is the problem more acute than in the countries of central and eastern Europe (CEE), whose energy systems are some of the dirties and inefficient in all of the EU.

EU funds, the main source of finance for infrastructure development, have the potential to be a primary driver for such change. They could help CEE countries rid themselves of fossil fuels-based energy by 2050, accelerate the uptake of renewable energy and boost much needed energy efficiency measures.

But for now, just as the Earth registered the warmest year on record for the second consecutive year, this important avenue of funding appears to be going in the wrong direction. Our study released today (26 January) looks at €178 billion in EU Cohesion Policy 2014 -2020 spending plans for Estonia, Latvia, Lithuania, Poland, the Czech Republic, Slovakia, Hungary, Romania and Croatia, and finds that governments there are completely overlooking the climate crisis.

On average a mere 7% of these countries’ entire EU Cohesion Policy funding is being allocated for clean energy (i.e. energy efficiency, renewable energy sources and intelligent energy distribution), and CEE governments’ appear hell bent on perpetuating expensive and unsustainable energy mixes, dominated by fossil fuels.

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Climate’s enfants terribles

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EU leaders have repeatedly vowed to phase out fossil fuel subsidies, but both direct and indirect EU support is set to continue financing coal and gas projects.

Investments in coal-burning boilers are a case in point, as shown in the Cohesion Policy Funds programming documents of the Polish regions of Małopolskie and Podkarpackie, as well as the Czech Operational Programme Environment. These are not the only ones. Additional information we have obtained indicates that other regions in Poland – namely, Dolnośląskie and Śląskie – plan to negotiate financing for coal boilers to be included in their EU-funded investment strategies.

In most countries of the region, biomass is the main renewable energy source supported by EU funds. In Latvia and Estonia it is the only one. Often biomass energy projects are funded without the necessary safeguards to ensure the sustainability of the fuel source. Worse still, some intend to use biomass and coal in tandem, which counts as support for renewables, even though it prolongs the lifetime of fossil fuels-based energy production in the most unsustainable way.

In addition, big infrastructure projects, especially in the transport sector, see millions of euros in public funds spent on roads, while ignoring the detrimental health, social and environmental repercussions of such projects.

When we presented our findings at DG Regio’s dialogue with stakeholders (pdf), we were told “you might have the wrong figures”. Yet our comprehensive analysis of countries’ Partnership Agreements and Operational Programmes challenges the Commission’s argument (pdf) that “sustainable development and climate change concerns have been mainstreamed” in those same spending plans. This claim is not evidence-based, to keep the official jargon.

We believe EU funds can help foster a decentralised and decarbonised circular economy that would allow CEE countries to make a substantial contribution to Europe’s long-term energy targets. But given the current, business as usual trend, these countries will undoubtedly lose much of that transformative potential.

When EU money is used for the wrong ends, such spending undermines the joint European effort to address both the climate crisis and promote prosperity, European tax payers cannot ignore this, and neither can the European Commission.

Today’s decisions about energy infrastructure investments in CEE will have implications for generations of Europeans and the entire Union. The billions in EU money these governments receive come with a responsibility to all European citizens. Governments of the region must end their countries’ addiction to fossil fuels and instead use this money for facilitating what is essentially an inevitable energy transition.

For its part, the European Commission needs to seize the opportunity that is the upcoming midterm review of the EU budget to ensure that funding extended to CEE countries is used to help meet – not undermine – European efforts to combat climate change. Europe simply cannot afford treading the same, outdated energy path.

How to improve disclosure in World Bank public-private partnership projects?


One of the issues with public-private partnerships (PPPs) that Bankwatch has been drawing attention to for many years already is the lack of transparency around many of the projects. The most basic questions too often go unanswered, including why a PPP is being used at all, how much it will cost over its lifetime, which budget will pay for it, how much the private partner will earn, and how much a traditional public procurement project would have cost instead.

The World Bank has finally started to recognise this problem and has drafted what it calls a Framework for Disclosure in Public-Private Partnership Projects. A public consultation is being held on the document until 29 February.

See the World Bank website for more information >>

The draft contains some positive elements but can certainly still be improved. If you’d like a kick-start in thinking about how disclosure could be improved in PPP projects, you might like to take a look at the recommendations from our report on the dangers posed by PPPs Never Mind the Balance Sheet (pdf, see page 48-50). The report was written back in 2008 but the recommendations are still as relevant as ever.

And don’t miss our website Overpriced and underwritten – the hidden costs of public-private partnerships with detailed explanations of PPP pitfalls, a bunch of case studies and a growing resources section.

UPDATED: New documents on European Investment Bank loans to Volkswagen

Documents obtained by Bankwatch provide more details for a European Investment Bank statement that its loans to Volkswagen may have been connected to the car makers use of cheating devices to rig emission tests.

With each passing day since Bankwatch revealed the European Investment Bank’s massive support for Volkswagen, it looks more likely that the EU’s house bank is indeed linked to the VW scandal through at least one of its loans. As the EIB’s president Werner Hoyer admitted during the bank’s annual press conference on January 14, the bank cannot rule out that a EUR 400 million loan to the carmaker in 2009 has been used to create a cheating device to rig emission tests.

The loan in question is one of 12 projects for which Bankwatch requested access to documents in September 2015. Two months later, after failing to meet an extended deadline, the bank provided heavily redacted documents for only two of these loans. After a final confirmatory application by Bankwatch it took another three weeks until the bank gave access to redacted versions of all finance contracts signed with the VW group and of the completion reports provided by VW to the EIB at the closure of each project. (See all documents in this Google drive folder.)

The EUR 400 million loan from 2009 mentioned by Hoyer was granted for the “Volkswagen Antrieb RDI” project under the Climate Action programme of the EIB and was supposed to help develop greener and more fuel efficient drive train components for passenger cars and utility vehicles to reduce emissions and improve energy efficiency in the European transport sector.

Our fear at Bankwatch is and was that the EIB has not done enough to monitor the performance of its client Volkswagen with regards to the stated environmental goals of the loans, which is why we requested these reports.

In the completion report for the “Antrieb RDI” project, VW reported significant pollutions emission reductions from the project, including reductions in carbon dioxide emissions and oxides of nitrogen.

The completion report’s length of merely 2 pages, including a cover letter, seems to be very little effort for reporting on an almost half a billion euro loan. But what sticks out is one component or car model (unclear from the information available) that – according to the report – complies with the world’s strictest emission standard SULEV (super ultra-low emission vehicle) – a US classification for passenger vehicle emissions. [*]

This could be a link between the EIB’s loan and VW’s emissions cheating – one that could have been noted 3 months ago had the EIB disclosed the documents. But with the EIB blacking out most of the information, including the cars or components that the emission reductions refer to, it is impossible to establish that link and the bank can continue to go about its internal investigation without public scrutiny – four months after the scandal broke.

Another interesting detail is that the financial contract for this loan is the most redacted of all twelve that the EIB disclosed. Most notably, only in this loan’s contract Volkswagen’s reporting obligations have been entirely redacted (or have not been part of the contract in the first place).

Bankwatch received these documents in mid December. With Hoyer’s revelations now at the EIB’s press conference, it seems the bank already knew one month ago that something might be fishy with the Antrieb RDI loan.

Four months after the Volkswagen revelations, the EIB is still not disclosing relevant information that is in European public interest – in contrast to its declaration of complying with EU principles on access to environmental information. What is there to hide, Mr. Hoyer?


* Update March 21, 2016: The text has been modified to remove a reference to the VW Jetta, which we found to be the only VW car compliant with the US emissions standard SULEV. As we found out subsequently, however, only the Jetta hybrid is SULEV compliant, but not the Jetta diesel, which was found to have excess emissions.

To this day, it remains impossible to confirm or dispel doubts over the EIB loans’ involvement in the emissions scam. With the EIB still not disclosing more information we’re left with speculations.

Romania and the Energy Union: little more than wishful thinking

When Maroš Šefčovič, the Commission’s Vice President for the Energy Union visited Bucharest in October 2015 to discuss Romania’s role in the overhaul of Europe’s energy sector, his speech seemed promising at first. It focused on renewables, energy efficiency and research and innovation – all issues that are rarely on the Romanian public agenda. But eventually, much like the Commission’s assessment for Romania (pdf) that was presented during the visit, the message and its level of ambition felt more like much ado about nothing.

According to the assessment, Romania’s progress towards its various energy goals (efficiency, decarbonisation, and renewables) is satisfactory, however the Commission fails to identify what prevents further progress. Specifically, the Green Certificates scheme, which facilitated emissions reductions and investments in solar and wind energy in the first place, is now under threat from the state’s energy and gas regulator ANRE.

Since Romania’s electricity market is marked by constant oversupply, ANRE decides about who gets to feed in their electricity. In 2015, ANRE reduced the annual mandatory share of renewable energy from 15 percent to 11.1 percent. Since Romania’s Green Certificates scheme links the support for renewable energy directly to the amount of electricity producers (are allowed to) feed into the national grid, their support has effectively been reduced by almost one third, resulting in what has been called the collapse of the green certificate market.

Mr Šefčovič’s speech, however, seemed to be strongly in favour of new energy sources, stating that the 21st century will not be about reserves of oil, gas or coal. He went further and insisted that being close to the 2020 targets should not create complacency, especially as local solar and biomass power show great potential.

Energy Union – torn between decarbonisation and fossil fuels

The vision of the European Commission’s Energy Union proposes making Europe a world leader in renewables and energy efficiency, but at the same time emphasises investments undermining that goal.

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The Energy Union can therefore be a promising prospect for Romania’s sustainable energy sector if it counterbalances unpredictable government decisions, which have created an inconsistent energy policy, at times contradictory to the National Strategy. Often changing government policies have discouraged small and medium producers to invest further, while foreign companies are losing their interest in further developing wind power in Romania.

Unfortunately, the Energy Union is not as ambitious as Šefčovič’s speech suggested, and the focus remains on fossil fuel resources. The country assessment for Romania (pdf) suggests that the main challenges will be related to gas supplies. This is surprising as, unlike most EU countries, Romania’s dependence on foreign gas is low due to domestic reserves. The country is Europe’s fourth biggest natural gas producer (pdf) (after the Netherlands, Germany and the UK) , and it has the lowest dependence on natural gas in the EU, after net exporters Denmark and the Netherlands. Furthermore, following a decrease in consumption, gas imports from Russia have recently decreased.

However, Mr Šefčovič stated that Romania’s geographic location entails the development of its gas infrastructure, and the same goes for electricity, so that excess amounts could be exported “directly into Europe’s markets, both within and outside the EU”. But it isn’t clear at all where exactly this power will go, as most countries in the region, at least in the western Balkans, see themselves as potential electricity exporters.

The country assessment also states that the Energy Union could provide potential benefits for Romania in Research and Innovation (R&I) towards “low-carbon technology development”. Šefčovič also stressed in his Bucharest speech that technology is easier to export than resources. This is a welcome encouragement from the Commission, as Romania had the lowest expenditure on Research and Development in the European Union since joining in 2007, reaching an all-time low in 2013 of just 0.39%. At the same time, it is still unclear what sort of tools the Energy Union will provide for correcting this situation, and how the funding will compare with the one aimed at the fossil fuel industries.

In conclusion, the European Commission’s vision for the Energy Union in Romania is little more than wishful thinking. The push for renewables, energy efficiency and R&I seems to overlook local realities and offers no ways for changing them. At the same time, although large support was declared for alternative sources of energy, the fossil fuel industry has no reason to worry, as no commitment was made towards an actual change of the current European energy paradigm.

Guest post: New report shows that New Kosovo Power Plant would worsen poverty and cripple a fragile economy


The lignite-fired Kosova e Re or New Kosovo power plant project has been under development for more than a decade, yet there is still an astonishing lack of official information about it. The little information that has emerged has changed casually from year to year, even while the tender procedure has been going on. First the mines and rehabilitation of the existing Kosova B plant were included in the tender, then they weren’t. A decade ago the plant was planned to be 2000 MW, then it was tendered at 600 MW, then in November, the Kosovar Minister of Economy suddenly stated that it would be 500 MW.

During this seemingly endless saga, neither Kosovar politicians nor the World Bank, which is leading on the project development, has answered the all-important question of how much this plant would cost the public.

Now, however, the Institute for Energy Economics and Financial Analysis (IEEFA) has published a study (pdf) commissioned by the Kosovo Civil Society Consortium for Sustainable Development (KOSID), concluding that the proposed plant would likely increase electricity retail prices by 33-50 percent and result in the average Kosovar household paying 12.9 percent of its annual income for electricity. This is twice what most European households pay. Low- to middle-income households in Kosovo would spend 18 percent of their annual income for electricity, while very low-income households would pay a massive 39.7 percent of their income for electricity.

Such shocking figures shine a new light on embarrassing statements made by World Bank President Jim Yong Kim in 2013 about Kosovars “freezing to death” if the World Bank does not finance the new coal plant.

No-one will freeze to death if the bank does not provide a loan guarantee for the plant, but IEEFA’s report shows that if the World Bank and other multilaterals like the EBRD do support the project, low-income households may well end up choosing between electricity and food. Kosovo has already seen protests about high electricity bills, even though the per-unit rate is relatively low. Low levels of energy efficiency mean that consumption is relatively high, leading to high bills.

The report also sees construction of the New Kosovo Power Plant far exceeding the government’s projected cost of EUR 1 billion. It puts those costs at closer to EUR 4.2 billion by the time the plant goes online as planned in 2021 due to financing costs, and finds it financially unviable without massive subsidies.

Plans for the Kosovo C plant already looked worrying enough: 7000 people to be resettled to make way for mine expansion, crowding out investments in energy efficiency and sustainable renewable energy, climate impacts, health impacts from the new plant and expanded mine, irregularities in the tender procedure, lack of transparency about benefits for the private investor and potential clashes with Energy Community rules on state aid are just some of the problems we’ve identified with the project. IEEFA’s analysis now adds a whole plethora of new and largely unsolvable problems.

How can public banks like the World Bank, whose very mission is to end poverty, possibly justify continuing with this project?