Blog entry

Continued EU budget battle could sacrifice clean energy investments and clog economic recovery

How much money is needed to create 62 300 jobs and how much to save 523 megatonnes of CO2 emissions annually?

Yesterday’s General Affairs Council meeting certainly didn’t touch upon questions of such practical nature. Instead, the wrangling over the size of the future EU budget continued, with an ongoing deadlock between those suggesting to cut the European Commission’s proposal and those trying to prevent it.

Yet, the later concrete figures can be agreed upon, the less time remains to discuss how to use that money. In this way, the negotiation deadlock is particularly counterproductive, by stalling further deliberation of ways to use the EU’s Cohesion Policy in more ambitious ways and more effectively than what we have seen in the past. If done right, this could not only help us on the way to Europe’s climate targets, but also on the path out of economic downturn.

As a recent Bankwatch study shows, the currently proposed funding for low-carbon measures would be far below what is necessary to do more than just cursory climate action.

In “No half measures. Investment needs in energy efficiency and renewables in the CEE countries” (pdf) we examined how much money is actually needed to create jobs and reach Europe’s climate targets. We looked at seven countries in central and eastern Europe (Bulgaria, Czech Republic, Hungary, Latvia, Poland, Slovakia and Slovenia), namely at the impacts of investment programmes in energy efficiency and renewable energy.

The outcomes of our analyses of scientific reviews of these programmes and of future projections show the big potential (see below) they have for climate change mitigation, social and economic benefits and job creation – especially when compared to business-as-usual development, for instance:

„The labour intensity for deep energy renovations […] per million Euro invested is more than double the labour intensity of the entire construction industry.“
(Source: Central European University, pg. 104)

We suggest that the EU Budget and the regional funds can provide the necessary funding for such investments, if a sufficient amount of the future EU Budget will be set aside for real low-carbon measures. So rather than debating a reduction of the EU budget, it is necessary to increase the share of investments in energy efficiency and RES from the originally proposed 20%.

Current plans for the Structural and Cohesion Funds unfortunately look rather different: the roughly 31 billion euros proposed by the European Commission for low-carbon measures in all EU countries (in 2014-2020) would not nearly be enough, even with the increase that the European Parliament and the Council approved recently. The necessary sum for the seven CEE countries we examined is already more than five times that amount: 172.382 billion over seven years.

As the study’s title suggests, it is not half baked measures that we need, but a dedicated pursuit of low-carbon investments that would mitigate both climate change and the impacts of the economic crisis. Only with increased earmarking can the benefits of job creation, leverage effects and emission reductions be realised at a reasonable scale.

Here are two examples of what could be achieved with sufficient funding:

By investing 2.1 billion euros by 2020 in the renovation of houses in Bulgaria:

680 000 households could be provided with heat efficient buildings,
60 000 jobs would be created and
CO2 emissions of half a million tonnes would be reduced annually.

A more ambitious investment programme in Hungary would cost 23.8 billion euros by 2020 but result in

the deep energy retrofitting of all residential buildings,
the creation of 131 000 jobs and
the reduction of CO2 emissions by 45%.

The longer the EU budget debate continues, the more it resembles a fight over money bags rather than a constructive debate on Europe’s future.

The EBRD in Mongolia: Economic diversity is something else

As far as we can tell, the European Bank for Reconstruction and Development has arguably not done too much to incorporate Bankwatch’s extensive and well founded (for example here) inputs on its new Mining Strategy. (Although, to be perfectly honest, we don’t know what the bank has incorporated yet, because – in line with a transparency policy that we disagree on – it refused to disclose their responses to NGO comments.)

Discuss live and online with Mongolian campaigner Sukhgerel Dugersuren

We will discuss the EBRD’s mining operations in the European Parliament and in a live online video discussion this Thursday.

See more details below

One of the risks inherent in the strategy’s current draft lies in the EBRD not contributing to economic diversification of resource rich countries, but rather to an exacerbation of their commodity export dependence (“resource curse”).

Mongolia, which has become the promised land for mining companies over the last years, is a case in point. Taking a look at the EBRD portfolio in Mongolia, the dominance of natural resources/mining becomes obvious both over the span of the bank’s operations in the country and in particular during the last two (calendar) years. (Additionally to these numbers, the EBRD is considering a loan to the gold and copper mine Oyu Tolgoi in the Mongolian South Gobi desert.)

Other problems with the draft include coal mining, protection of natural areas and more. So there is lots to discuss about the EBRD’s upcoming Mining Strategy, which is exactly what we intend to do on Thursday, September 20, in the European Parliament and later in a live-streamed video discussion. Join us!

Event details

The new EBRD Mining Strategy: in line with EU policy objectives?

Open debate
Thursday, September 20, 8.00-9.00 (CET)
at the Members’ Salon, European Parliament

Hosted by Reinhard Bütikofer, Vice-President of the Greens/EFA and Rapporteur on Raw Materials, European Parliament

Inputs by:

Kurt Bayer, Austrian Executive Director at the EBRD on the EBRD’s upcoming mining strategy
Sukhgerel Dugersuren from the Mongolian NGO OT Watch on the EBRD mining financing in Mongolia
Kuba Gogolewski, Energy Campaigner at CEE Bankwatch Network on the EBRD’s upcoming mining strategy
William Neale, Member of Cabinet, DG Environment, European Commission (TBC)

Online video discussion

Thursday, Sept. 20, 11.30-12.00 (CET)
Live on the Bankwatch website

with:

Sukhgerel Dugersuren from the Mongolian NGO OT Watch on the EBRD mining financing in Mongolia
Kuba Gogolewski, Energy Campaigner at CEE Bankwatch Network on the EBRD’s upcoming mining strategy

moderated by Bankwatch media coordinator David Hoffman

Following the panelists’ presentations there will be a short question and answer session.

Join the discussion by submitting your questions online

through our Facebook page (also possible in the right side menu);
via Twitter using the hashtag #EBRDmining (also possible in the right side menu);
in the comments section below the YouTube video, or
by leaving a comment at the end of the event’s page

The video will also be live-streamed on the Bankwatch YouTube channel.

Another case of alleged corruption in a CEE energy company

UPDATE Sep 17, 2012: The text has been revised to clearly reflect the relation between the company in line for EIB and EBRD loans – ENEA Operator – and the company facing corruption allegations – ENEA S.A.

We have seen a number of cases recently, where clients of the European Investment Bank and the European Bank for Reconstruction and Development have allegedly been involved in serious cases of corruption. (See for example Alstom in Slovenia and EPS in Serbia.)

Now a similar case has developed in Poland, where the company in line for loans from the EIB and the EBRD – ENEA Operator – is a fully owned subsidiary of ENEA S.A., which has come under official scrutiny now. (The EIB has approved but not yet signed a loan to ENEA Operator, the EBRD will decide on October 30.)

The story first became public in the Polish parliament in March this year, when Polish MP Jan Cedzyński issued his first parliamentary question, alleging the CEO of ENEA S.A., Poland’s majority state-owned energy company, of serious irregularities.

Since then, ten more parliamentary questions have been issued, three state institutions have started investigating irregularities into ENEA S.A. and the public prosecutions office in Poznań opened a corruption investigation (details below). In all these cases, ENEA’s CEO Maciej Owczarek would be deeply compromised if the allegations turned out to be true.

CEO and state representative under corruption investigation

As in each Polish state-owned company, the Ministry of Treasury is represented in the company by an official representative who informs the ministry and represent state interests in the company. In case of ENEA S.A. the representative is chairperson of the company’s supervisory board.

A parliamentary question from May 23, 2012 which claimed [doc, PL] that the state representative was bribed by ENEA CEO Maciej Owczarek has led the local prosecution office in Poznan to open an investigation into the case.

Ironically, although the MP who issued the parliamentary question had informed both the government and ENEA, and the company is investigating the case, the accused remains in his position and thus supervises the investigations that concerns himself.

Irregular payment of PLN 1 million to lobbying organisation

The public prosecutions office in Poznań is investigating the (incomplete) privatisation of ENEA S.A. during 2010-2012 [PL]. Under investigation are among others payments in March 2011 and February 2012 of altogether PLN 1 million from ENEA S.A. to Central Europe Energy Partners (CEEP), a Brussels based lobbying organisation of energy companies.

According to another parliamentary question [doc, PL] from April 2, 2012 these payments have been made in the sole discretion of ENEA CEO Maciej Owczarek, without the legally required authorisation by the company’s board of directors.

Irregular tender procedure

The most recent case is an investigation by the Supreme Audit Office (NIK) [PL] into the tender procedure for a new billing system.

After the company ASSECO Poland bid with the cheapest offer, Owczarek decided to cancel the tender, which was followed by a second one, constructed (by the CEO) in a way that excluded ASSECO from participating. The final winning tender was an offer several times more expensive than the original one by ASSECO. (Source [doc, PL])

It is highly unlikely that these cases will be sufficiently clarified until the EBRD approves its loan to ENEA Operator. To stay clear of controversies as the one in Sostanj and Kolubara, the bank should at least wait until official investigations have been concluded.

Another success against Czech incineration, government in blissful ignorance

Earlier this month, the Czech Republic’s handling of municipal waste came under criticism from the European Commission, when it was identified as one of several EU member states not doing enough to recycle and actually infringing European legislation.

Of these failing waste states, the Commission press release notes:

“Failings include poor or non-existent waste prevention policies, a lack of incentives to divert waste from landfills, and inadequate waste infrastructure. Heavy reliance on landfilling means that better waste management options such as re-use and recycling are consistently underexploited. The outlook is accordingly poor.”

This outlook will remain poor if the Czech Republic doesn’t start reconsidering its love for waste incinerators.

Bankwatch has campaigned – often successfully – against several such projects. The most recent success came earlier this month in the Czech Republic with the announced abandonment of plans to develop the GBP 185 million Karvina municipal waste incinerator with support from EU funds allotted in the current EU programming period (2007-2013).

But while the project will not be moving forward at this stage, it’s not unlikely that Karvina will get another chance for EU funding support in the forthcoming programming period 2014-2020, since the current Czech government still proposes to favour incinerators over recycling [CZ].

The Karvina incinerator, officially called the Regional integrated centre for recovery of municipal waste in the Moravian-Silesian Region (in north-east Czech Republic), had been intended to be ready for operations in 2015. The promoter company is KIC Odpady, whose shareholders are the region and municipalities of Ostrava, Karviná, Havířov, Opava and Frýdek-Místek.

The project financing was heavily reliant on public money, in particular on EU Cohesion Policy money, a loan from the European Investment Bank, and regional and municipal budgets. Earlier this summer the European Commission deemed that it could only provide a 20 percent subsidy under Cohesion money for the project, while the promoters had been relying on a 40 percent figure – the CZK 1 000 000 000 shortfall has been a major factor behind the spiking of the project for now.

Another contributing factor has been a legal action brought by environmental groups, including Bankwatch member group Hnuti Duha, related to the planning of the incinerator. In January this year the Ostrava Regional Court has issued a preliminary verdict that undermines the validity of the zoning and planning decision for the proposed incinerator site because a rare dragonfly species lives in the vicinity. Since a valid zoning and planning decision is necessary for the construction permit and also for the application for EU funding, the decision posed a serious roadblock for the project.

There are also wider issues and question marks about the Karvina incinerator’s suitability that we have raised and that continue to dog the project:

The choice of incineration as a waste management option in the modified Czech National Waste Management Plan and the Regional Waste Management plan for the Moravian-Silesian Region has been controversial particularly as mechanical-biological treatment (MBT) of municipal waste has been identified in numerous studies as a more effective option. Indeed, the construction of a waste incinerator is viewed by some experts as a potential ‘lock-in’ option, preventing the development of separate collection and recycling.
NGOs and experts are concerned about the quality of the project’s environmental impact assessment process, particularly over the insufficient assessment of alternatives and the coherence of the Karvina incinerator project with the waste management hierarchy.
Moreover, the very design of the project includes the option of significantly scaling up its annual waste burning capacity of 192,000 tons per year. This potential expansion in the future contradicts the project’s environmental decision that stipulates that the capacity of an individual incinerator within a specific region or territory must not exceed half of the total annual production of municipal solid waste in that area.
One major concern is that EU funds could thus be being lined up for future expansion of the Karvina incinerator, for which there is not and will not be sufficient waste, with the associated fear that waste would then have to be imported from abroad.

If the Czech government realises its plans to prioritise waste incineration over recycling, Karvina and similar projects will continue to be put forward for EU funding. My hope is that the European Commission is quite clear about its priority for waste prevention and recycling when it meets with the Czech Ministry of Environment in September to discuss the country’s waste management performance.

UPDATE 30.08.2012: The title has been changed to convey that this story, despite the mixed outlook, is about a successful campaign after all.

Money lost, safety postponed: On the mismanagement in Ukraine’s energy sector

In our attempts to promote the development of renewable energy in Ukraine, we constantly hear from officials: “We’re a poor country, we have no money for renewables”.

That this is just a weak excuse confirmed a recently leaked official letter by the State Financial Inspection of Ukraine (SFIU). The letter, presenting results of their operational audit of nuclear power plants operator Energoatom shows how the company has used public funds inefficiently, costing Ukraine millions and millions hryvnias.

How the dismissal of Energoatom’s president two days ago is related to this audit has so far not been established. But what the audit shows is that it is not simply a lack of money but the systemic mismanagement of public funds that drains resources away from important investments in Ukraine.

The letter notes that an SFIU audit from January to May 2012 revealed “numerous legal violations” which led to almost EUR 123 million losses (1 229 million hryvnas). The majority of these – according to the letter, “systemic” – violations concern laws on public procurement.

The letter also says that most of the auditors’ recommendations and demands were not taken into consideration by Energoatom and “in the majority of cases are being openly ignored: biddings are not cancelled, contracts continue to be made in violation of the tendering law”. (See page two of the SFIU letter at the end of this article [ukr].) The few recommendations that were taken into account during the time of the audit, amounted to only 5 per cent of total violations found (or 56,9 million hryvnas).

Energoatom’s losses versus nuclear safety – public money to the rescue

EUR 123 million are no peanuts for Energoatom. They could account for forty per cent of a EUR 300 million loan that the company is seeking from the European Bank for Reconstruction and Development (EBRD) to finance the planned Nuclear Power Plants Safety Upgrade Programme (SUP) – a project that Bankwatch has a thing or two to comment on, most importantly that it will factually help keeping outdated nuclear reactors running. Together with a potential EUR 300 million loan by Euratom, European institutions would provide a bit less than half of the entire project costs of EUR 1,45 billion.

Besides the questionable appropriateness of the SUP project for EBRD funding, there are also those remaining doubts over the outcome of an earlier Energoatom project financed by the EBRD and Euratom in 2004: Eight years after approval of the controversial K2/R4 reactor modernisation, we still see a number of unfulfilled commitments (pdf) made by Energoatom and Ukraine, and the EBRD management has not allowed public access to their assessment of K2/R4 achievements.

Moreover, the results so far of the SUP project point in a similar direction: during a board meeting of Ukraine’s Nuclear Regulatory Inspectorate in March this year, the State Nuclear Regulator stated [ukr] that targets for the SUP for 2011 were not met as not all safety measures were implemented as planned.

I wonder whether the money and time lost over the manipulation of tendering procedures would have been enough to complete the most pressing safety measures. Would it still be necessary to further increase the company’s debt (already at EUR 470,9 million, according to the SFIU letter) by as much as EUR 600 million?

That much public money could be put to better use. Ukraine has a great potential to meet its electricity needs by reducing our intensive energy use and developing renewable energy sources. Promoting and supporting this promising green energy sector in Ukraine, and helping Ukraine with shutting down old nuclear reactors would achieve a much safer and more sustainable environment at Europe’s eastern border. This is what EU and EBRD money should focus on.

Granting, instead, a loan to Ukraine’s nuclear energy monopolist with fraudulent managerial practices leaves practically no chances for taking us that far.

The devil in the details: Europe’s low-carbon economy dream

In 2009, former British Prime Minister Gordon Brown heralded the beginnings of a “green revolution” that would be comparable in impact to the Industrial Revolution. The green revolution, said Brown, would lead to a new Ecological era in which the carbon footprint would be the basic criterion for assessing any human activity.

This epochal statement coming from the leader of one of the most carbon-intensive countries in the world is a clear sign that the need to take determined action against climate change has become mainstream. Political discourse has consequently shifted to reflect this new reality, with decision-makers including the concept of “low carbon economy” more and more often in their public interventions. And it is likely that, with the looming threat of climate change upon us, the low carbon economy will remain a top political goal for decades to come.

That is what fossil fuel industry lobbyists encourage us to do, celebrate marginal efficiency improvements while ignoring the fact that dirty production methods persist and might even expand.

The popularity of the low carbon economy among decision-makers is not only caused by environmental imperatives, but also because it is a framework which allows looking at issues such as climate change mitigation, energy savings, efficiency and rational resource use from an economic perspective.

In times of both economic and environmental crisis, politicians like to hear that you can, at the same time and using the same means, fight climate change and environmental degradation on the one hand and solve the problems of a collapsing economy on the other.

Thus, the low carbon economy has become a priority in numerous political programmes including the European Union’s new Europe 2020 growth strategy, which includes a set of binding targets for a low-carbon economy. Furthermore, the European Commission has elaborated a Roadmap for moving to a low-carbon economy by 2050 and decarbonisation priorities have been included in separate strategies for the energy and transport sectors. Additionally, the EU’s new Cohesion Policy (regional funds) will have as one of its main priorities “supporting the shift towards a low-carbon economy in all sectors” (pdf).

Individual members of the Union too are slowly becoming acquainted with the concept. For example, in recently elaborated documents, Slovak authorities have started including the concept of an “economy of green growth”, although for the moment the expression seems to be used in a marginal and rather clumsy manner. But the government has announced it would come up with a “Low-carbon strategy for development until 2030” to be prepared by the Ministry of Environment by the end of this year.

Other countries too, even in Central and Eastern Europe, are slowly jumping on the low-carbon bandwagon, partly to fulfil commitments to the EU and secure European resources.

But a great risk lies in this growing popularity: the concept of a low-carbon economy may become diluted as more and more actors adapt it to their needs. The success of the low-carbon vision will naturally depend on what ends up being categorised as low-carbon.

For instance, the EU gas lobby has been trying to push for having gas included among the low-carbon fuels to receive European subsidies. The coal lobby too has been arguing that carbon capture and storage (CCS) and coal combustion technologies be considered low-carbon measures under the oxymoronic label “clean coal”. Worryingly, the advocates of coal and gas have found support among EU decision-makers and hence there is a real risk that fossil fuel investments could be paid for with EU low-carbon budget funds.

Needless to say that nuclear advocates too present ‘their’ type of power as core to the low-carbon vision, because of its low greenhouse has emissions, regardless of its huge environmental and health hazards.

These examples show what is the danger here. The crux of the matter will be how we measure the carbon intensity of a specific project: if we concentrate only on chimneys and exhausts but neglect the whole production cycle we can come to a grossly distorted picture of what contributes to carbon emissions reductions and in what way. That is what fossil fuel industry lobbyists encourage us to do, celebrate marginal efficiency improvements while ignoring the fact that dirty production methods persist and might even expand. And, for this reason, the European Union and national authorities need to be very careful with how assessments of the carbon footprint of projects are completed, to make sure the entire real impact of the operations is taken into account.

The planning of a low-carbon transition in the EU has started. Despite of still lacking clarity over the concept and its implementation, more and more actors are rallying behind it.

And this is precisely why we should always remember that the problem with new concepts backed by huge amounts of money is that everyone learns fast how to use them – soon, everyone will declare their contribution to a competitive low-carbon economy, and we will be running the risk to make the concept meaningless or even dangerous. It is therefore important to keep a close eye on the evolution of this low-carbon vision and always remember that the devil is in the details.

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