Blog entry

Biodiversity on the brink: what’s holding back financing for nature?

Nature in Europe is in crisis: 81 per cent of habitats are now in a poor state. Biodiversity loss is happening at an alarming pace, and we need swift and urgent action to address this. Yet although more funds, especially from the EU budget, are available to Member States, the countries are not seizing this opportunity to protect and restore Europe’s biodiversity.

The EU Biodiversity Strategy for 2030 sets several targets for biodiversity financing. These include the need to earmark EUR 20 billion annually across the EU, as well as 7.5 per cent of the EU budget to go to biodiversity related activities by 2024 and 10 per cent by 2026. Yet estimates show a total funding gap of EUR 187 billion across the period from 2021 to 2030 needed to deliver on the strategy’s targets.

Bankwatch and EuroNatur, together with four national organisations, recently organised a series of roundtable discussions with a variety of nature conservation organisations in order to better identify some of the common challenges impeding EU biodiversity funding. These are some of the key problems holding back progress in financing biodiversity nationally that they identified.

Lack of public funds

Our discussions on bottlenecks in financing biodiversity show that Member States fail to provide systemic funding in the field of biodiversity restoration and conservation. For example, in Slovenia, the Ministry of the Environment and Spatial Planning receives four times fewer funds than other ministries. What’s more, environmental, nature and landscape organisations in Slovenia receive only 1.18 per cent of these limited funds. This financial shortfall makes it impossible to finance urgent nature conservation activities, such as regular and mandatory monitoring of protected areas. These activities require stable, long-term funding in order to lead to meaningful and impactful results.

In Croatia, national and local sources of funding for biodiversity projects have been drastically reduced over the last decade, which officials justify by citing the availability of EU funds to replace other sources. This has impacted smaller local organisations that do not have the capacity to write and implement EU projects. The lack of systematic rules for national co-financing of EU supported projects can also force such organisations to join bigger projects with public institutions. This in turn hampers their ability to publicly criticise any damaging practices in such projects.

Furthermore, even when funding for biodiversity is available, Member States do not seize the opportunity to finance nature. For example, the EU’s EUR 672 billion Recovery and Resilience Facility offered at least 37 per cent of its funds for environmental objectives, including biodiversity. Yet Member States failed to use this to finance restoration or conservation measures.

Lack of capacity, expertise and experience

Another common issue is the lack of expertise in the field of nature conservation, especially within the institutions responsible for managing these funds.

For example, in Croatia, the nature protection sector is understaffed. This, in combination with an over-centralised system, often does not allow for the full use of available funds. Additionally, there is a lack of capacity and expertise within the responsible ministry in charge of the disbursement of funds and public institutions working in this field.

Similarly, in Latvia there is a significant lack of capacity among both civil society organisations and competent authorities. Organisations lack the capacity to conduct advocacy work and public communication, follow the latest scientific research and ensure public participation in decision-making. They also depend on funding and often lack the core financial support necessary for their work. On the other hand, the competent authorities often do not have enough nature conservation and financial experts among their staff, and the existing capacity is not used efficiently.

In Slovenia, state institutions, responsible for obtaining funds, have insufficient knowledge of nature protection issues. Within these institutions, there is frequent staff turnover due to political timelines, meaning that there is often a lack of long-term expertise and knowledge. Responsible public bodies are understaffed, which is reflected by the shortfall in the transfer of knowledge to younger staff and as a general lack of ambition for long-term conservation actions. Organisations struggle with obtaining funding, as bureaucratic requirements often make application and reporting conditions too demanding.

Competition with other sectors

We have also observed conflicts of interest and lack of coordination between ministries, especially the ministries responsible for the environment and for agriculture. In Bulgaria, there is no monitoring of the results of agricultural measures which also include biodiversity objectives, originally included to ‘green’ the agricultural policy. Civil society organisations do not have the capacity to monitor the effects of the Common Agricultural Policy (CAP) on biodiversity, and currently there are no other actors who can take up this task.

What’s more, there is a lack of awareness of biodiversity issues in other sectors that should also incorporate biodiversity measures into their activities (and finance them). This has been especially visible in the agricultural sector. The competences for managing certain components of nature in this sector are often not clearly defined or are overlapping, which is a source of constant friction with nature protection authorities. An additional problem related to other sectors is greenwashing, in which projects that are not beneficial to nature are promoted as ‘green’ investments, often in order to formally satisfy the requirements of a fund to have a certain percentage dedicated to nature and biodiversity.

In Slovenia, conflicts with other politically and financially stronger sectors, especially agriculture, forestry and energy, pose a major challenge to obtaining sufficient funds for nature conservation. Strong lobbying from these opposing sectors prevents changes in the percentage of allocated funds in favour of biodiversity and consequently an increase in the share of investments in nature conservation.

Lack of political will

To secure sufficient public funds for nature protection and restoration, there must be political will. Yet national decision makers fail to understand the underlying issues and drivers behind this and prioritise addressing them.

Another serious issue is the focus on absorption of funds rather than efficiency and spending the funds on what is really needed. There are also serious transparency issues, namely providing information on implemented projects for environmental programmes financed under the EU’s cohesion policy funds.

In Slovenia, the key legislative and financial conditions required to participate in most funding applications narrow the circle of applicants to a select handful. Tenders and project implementation are too bureaucratically demanding, and the project objectives are too general.

In Latvia, there is not enough funding in the allocated state budget, which is mostly aimed at administrative tasks, for habitat restoration and compensation to landowners for the restrictions imposed by the state.

Financing of harmful activities

Even when the quantity of biodiversity funds is increased, it does not offset or mitigate the harmful effects of other financed activities. Although it is more cost effective to preserve than to restore nature, funding continues to be directed into biodiversity-damaging areas. Potential negative impacts across sectors are not factored into decision-making, in part due to low awareness but also due to difficulties in tools to track spending. In biodiversity rich countries, such as Bulgaria, the real challenge is to preserve existing nature in the face of economic pressures, including those coming from EU-funded subsidies and projects. A key priority must therefore be to prevent financing key drivers of biodiversity loss in the first place, rather than just its restoration after the damage has already been done.

In some countries, like Slovenia, the lack of tenders for biodiversity restoration or conservation projects also leads to the creation of ‘dumping’ offers, which consequently encourage the financing of activities that are not essential for long-term biodiversity protection. An additional challenge in choosing to apply for funds is the requirements and administrative management of EU-funded projects (LIFE, cohesion policy) that lead to the implementation of short-term ‘instant’ activities that have a visible effect over the life of the project rather than in the long term.

Proposed solutions for increasing funds for biodiversity:

The competent ministries and regional and local authorities must recognise that on top of EU funds there is also a need for national/regional/local sources of financing (and co-financing), especially for small to medium-size projects.
The nature protection sector should position itself more strongly in relation to other sectors and use the European Commission’s support for ‘mainstreaming’ biodiversity into other sectors as leverage.
Mechanisms for funding activities which address the biggest threats for biodiversity should be developed.
Transparency of the results of EU-funded projects should be a priority, including transparency of monitoring and control chains.
The use of funding coming from the Common Agricultural Policy (CAP) should be made less dependent on local political decisions. In order to make use of this funding source for the implementation of the EU’s Nature Restoration Law, a more centralised approach that elaborates concrete criteria should be taken by the European Commission.
Tax reform in favour of biodiversity support is needed. New tax reductions should be introduced based on voluntary investments and donations for biodiversity.

This article has been compiled from the results of roundtable discussions with environmental groups organised by Rolands Ratfelders, Green Liberty (Latvia); Katerina Rakovska, Balkani (Bulgaria); Hrvoje Radovanovic, Green action (Croatia); and Pia Hofferle, DOPPS (Slovenia), coordinated by CEE Bankwatch Network and EuroNatur. The activity was carried out in the frame of an ongoing project aimed at better understanding barriers to EU biodiversity financing, funded by the German Ministry for the Environment under the EURENI programme.

It’s time for the European Commission to act and protect the Kresna Gorge biodiversity sanctuary

Kresna Gorge, with the Struma River passing through it, is an area in southwest Bulgaria where, for centuries, nature has made its path through a narrow pass between two mountains and two climate zones: the Mediterranean and the continental. These unique conditions have created a biodiversity hotspot within the gorge, which is not only extremely rich with numerous endemic species, but also represents an important migration corridor. Two Natura 2000 sites and five national protected areas have been designated within this 17 kilometre-long area.

This natural corridor also forms a transport route between west Bulgaria and Greece and is part of the Trans-European Orient/East–Med transport corridor. As such, after a request from the Bulgarian government, the Struma motorway between Sofia and the Greek border received EU funding on the condition that Kresna Gorge would be protected and the project would comply with EU environmental legislation. The history of the Struma motorway project over the past 20 years shows that the Bulgarian authorities have made repeated attempts to carve a road through Kresna Gorge using EU money, while also breaching EU legislation and biodiversity requirements. Many of those attempts were prevented by the European Commission, but the latest one is gaining serious momentum.

In 2008, the environmental impact assessment (EIA) for the project concluded that the only possible option was a 15 kilometre-long tunnel bypassing the gorge itself. On this basis, in 2013, the European Commission issued a decision to finance the motorway (using cohesion funds) with the explicit condition that the route would ‘avoid the environmentally sensitive Kresna Gorge’. During the negotiation, the relevant Bulgarian ministers issued an undersigned commitment to implement the project ‘in full compliance with the 2008 EIA decision’.

At that time, the European Commission (DG REGIO) made its first mistake by agreeing to divide the Struma motorway into two major projects. This resulted in immediate financing (2007-2013) for the ‘easiest’ 68 kilometre-long part of the Struma motorway – (lots 1, 2 and 4) and postponing the 63 kilometre-long lot 3 – which included the Kresna tunnel – for the programming period from 2014 to 2020.

In 2015, after receiving nearly EUR 343 million in EU funds, the Bulgarian authorities renounced their official commitment and started to work again on a motorway route that would go through Kresna. In 2017, a new EIA was conducted only for the Kresna Gorge part of the project.

The European Commission’s second mistake was to provide the funding for lots 1, 2 and 4, even though the second part of the agreement about lot 3 being built outside Kresna Gorge was not respected. The commission also agreed to divide lot 3 into three parts – lots 3.1, 3.2 (Kresna Gorge) and 3.3 – and approved the financing for lots 3.1 and 3.3 again, thereby accepting that the Kresna Gorge section would be postponed. This is how DG REGIO intentionally lost its leverage to convince the Bulgarian authorities to fulfil what they promised in a timely manner and to safeguard EU funds from misuse by causing damage to Europe’s biodiverse habitats.

At the end of 2018, the Bulgarian government requested EU financing for lot 3.2 with a new route through the gorge. The firm answer from the European Commission was that the project did not comply with the requirements of the Habitats Directive, among other important deficiencies that were identified in the new 2017 environmental permit.

From 2019 to the present day, the European Commission and the Bern Convention on biodiversity have made systematic efforts to help the Bulgarian authorities get the project back on the ‘right track’.

However, it seems that after the rejection of the planned motorway in the gorge, Bulgarian construction companies and authorities have lost their appetite for the project. Indeed, in the final version of the Transport operational programme for 2021 to 2027, the allocated funds for the completion of lot 3.2 in Kresna Gorge amount to EUR 150 million – nearly five times less than predicted by all the financial assessments. Most of the funds (EUR 455 million) have now been shifted to two other road construction projects.

This is yet another example of breach of trust in public action in the long history of misuse of EU funds by the Bulgarian authorities. Several obligations regarding this project still need to be fulfilled:

The European Commission’s commitment for priority completion of the TEN-T corridors by 2030;
Bulgaria’s commitment to complete the Struma motorway according to the Commission’s decision from 2013 for the financing of the entire motorway;
An unfulfilled commitment from the Transport operational programme from 2014-2020, specifically the ‘removal of the bottlenecks along the TEN-T network’;
Both national and European Commission commitments to approve the project given that it fulfils the requirements of the EU’s biodiversity legislation;
The obligation of the Bulgarian government to prevent the deterioration of protected habitats and species, while also ensuring the safety of the people living in the town of Kresna, who today are exposed to international traffic that is four times heavier than before construction on the Struma motorway had started.

As the new operational programmes for Bulgaria are being finalised, our request is that the responsible institutions – the European Commission and the managing authorities of the Transport operational programme – need to resolve the issue by redistributing funds to provide maximum institutional and financial assurance that the project ‘avoid[ing] the environmentally sensitive Kresna Gorge’ will be implemented during the current period (by 2030). Otherwise, the project is unlikely to be completed in time, and traffic through the gorge will continue to affect both the area’s biodiversity and local population, probably resulting in an infringement procedure against Bulgaria.

Watch Za Zemiata’s video about the history of the Struma motorway through Kresna Gorge here.

Red flags over plans to swap coal for biomass and waste incineration in Tuzla

Intended to convert one of the coal-fired to burning willows and waste, it could not just harm climate, recycling and air quality objectives, but hinder the development of a number of more sustainable energy sources, which is why the project should be the subject of a comprehensive public dialogue.

The coal-fired unit 3 at the Tuzla power plant, which has been powering the district heating network serving the cities of Tuzla and Lukavac, is slated to close by end of 2023.

Now, it turns out that Bosnia and Herzegovina’s power utility Elektroprivreda BiH (EPBiH) is actively looking to convert this unit so it can run on locally grown biomass and waste incineration as a base load. But such a project would be anything but sustainable – it will not help shrink Bosnia and Herzegovina’s climate impact as much as it could, it would require much more land area than the company currently projects, and it could also end up triggering waste imports from abroad.

The European Bank for Reconstruction and Development (EBRD) is currently studying the feasibility of the project, which would determine whether the Bank would consider supporting it. But the information Bankwatch has obtained in recent months is sufficient to conclude that any investor, and certainly the EBRD, should stay away. Anyone looking into the mathematics of biomass and waste capacities needed to cover the full heat demand of Tuzla would realise that this project could be one dangerous adventure in terms of finances, air quality and climate goals.

According to EPBiH’s plans, the Tuzla 3 unit will run mostly on biomass, primarily fast-growing willows that would be grown nearby. The company is considering turning a total of 1,075 hectares at the Kreka, Breza and Đurđevik mines into willow fields. But, according to Bankwatch’s analysis*, energy crops in quantities necessary for the planned capacity would require 5.6 times more land area, or a total of 6,042 hectares.

In addition, developing waste incineration capacity would also circumvent the efforts to step up recycling in the country. The government had set a goal to recycle 20 per cent of its waste, but data from the European Environment Agency shows that in 2019 the figure stood at zero.

Beyond preventing more waste from being recycled rather than burned, the Tuzla 3 project also risks catalysing waste imports to Bosnia and Herzegovina, as the amount of non-hazardous waste produced in the entire Tuzla canton/region is insufficient for supplying the local heating network at its current extent, let alone if it is to be expanded.

The prospects of importing waste to meet the demand for waste fuel is particularly concerning given that Bosnia and Herzegovina’s capacities for the enforcement of waste management regulations have already proven especially limited.

Lastly, the greenhouse gas emissions that burning waste and biomass would produce would undermine the effort to stem the unfolding climate crisis. In fact, Bosnia and Herzegovina is seriously behind in curbing emissions, as the government keeps procrastinating on the transition from dirty fossil fuels, chiefly coal, to sustainable energy sources such as wind and solar.

And that’s perhaps the main issue with EPBiH’s Tuzla 3 ideas. These plans appear especially dubious given the far more sustainable alternatives for providing heating in the region. According to the World Bank’s Global Solar Atlas, Tuzla has a solar potential of 1,100 kilowatt hours per metres squared per year. For comparison, the town of Ludwigsburg, Germany, has the same solar potential as Tuzla and for over two years has been home to the country’s largest solar thermal plant that supplies the local district heating system.

The city of Tuzla could also prioritise the use of solar and other sustainable energy resources. It could tap geothermal sources and wind energy and could develop energy storage as it was proved and modelled in the Bankwatch analyse on district heating clean alternatives from 2021.

Waste incineration and biomass as a baseload for the heating would put the country’s energy transition on the wrong track. EPBiH and Bosnian policymakers can ensure homes in Tuzla and nearby Lukavac are warm with much lower emissions and without having to import trash from abroad. They just need to seriously invest in renewables technologies that have already proven themselves.

* The calculation was made on the basis of projections from several scientific papers and projects with support of the Partnership for Policy Integrity:

1. The Willow project at SUNY ESF, Willow biomass trials in Central New York State,

2. Borman, G.L. and K.W. Ragland. Combustion Engineering. McGraw-Hill. 1998. 613 pp,

3. Maker, T.M. Wood-Chip Heating Systems: A Guide for Institutional and Commercial Biomass Installations. 1994 (revised 2004 by Biomass Energy Resource Center),

4. American Pulpwood Association, Southern Division Office. The Forester’s Wood Energy Handbook. 1980.

Will EU cohesion money support energy communities in central and eastern Europe?

The idea of a decentralised, renewable-based energy system in Europe has been gradually receiving more and more attention, leading to official legal recognition of energy communities at the EU level. The Clean Energy Package, adopted in 2019, for the first time acknowledged the important role of citizens in the energy transition by introducing the concept of energy communities into legislation. More recently, the REPowerEU plan and more specifically the Solar Strategy have further confirmed the relevance of these collective initiatives around renewables, which could help speed up the deployment of solar energy in Europe and allow the EU to reach its 2030 and 2050 climate targets.

Having recognised the growing potential and importance of such initiatives, CEE Bankwatch Network has joined forces with REScoop.eu (the European Federation of Citizen Energy Cooperatives). The goal of this collaboration, which has already resulted in several joint activities, is to strengthen the support from EU funds for energy communities and raise awareness on the topic.

EU funds fail to support energy communities

One of the most important aspects of our cooperation is the continuous monitoring of EU funds. We’ve looked at allocations for energy communities in the cohesion policy and the Recovery and Resilience Facility, but for the moment, as the preparation of the operational programmes is ongoing, we’re concentrating our efforts exclusively on the cohesion policy.

During our analysis, we examined whether and to what extent operational programmes in eight different countries envisage support for the development of energy communities. The situation varies, but across the board there’s little being done to develop the energy community movement in the region, since there is no real legislative framework in place and support structures are lacking.

Based on our analysis, we categorised Member States into three categories according to how well their operational programmes support energy communities.

1. Lack of any support for or mention of energy communities in the operational programmes

Romania, Estonia and Bulgaria have shown the least support for energy communities in their programming for cohesion policy; energy communities were not even mentioned in any of their national operational programmes.

Recommendations: Remove administrative and legal barriers to the development of energy cooperatives. In the operational programmes, include a strategy for network development through things like one-stop shops, raising awareness, training programmes and capacity-building activities.

2.Sparse funding available

Czech authorities neglected the role of energy communities in the Environment operational programme and only briefly mentioned them in the operational programme for Technologies and Applications for Competitiveness.

Latvia recognised the role of energy communities in its operational programme, yet the proper understanding of the concept is still lacking. The main concern is the fact that the support is planned for renewable energy sources of capacity minimum 1MW, which is an industrial, profit–generating level.

In Poland, the ambition varies according to the operational programme. While most of the 16 regional operational programmes plan to support energy communities, the national programmes are still lagging behind, to the point that the initial draft of the operational programme entitled European Funds for Infrastructure, Climate and Environment (FEnIKS) removed details about energy communities (which were initially included) from the version of the programme adopted by the government and submitted to the European Commission.

Recommendations: Recognise the role of energy communities through their inclusion in operational programmes that omit any support for such initiatives. Pass necessary legislation at the national level that would enable the development of energy communities in the Czech Republic and Poland. Improve the definition of energy communities and especially its purpose so it could be dedicated to social and environmental benefits, rather than financial profits.

3. Support planned, but with limited strategy for the development of energy communities

In Hungary, energy communities are mentioned in three operational programmes, but there is no budget specifically earmarked for these initiatives. There are still risks concerning the flexibility of access to funding, and the scope of eligible activities is neither broad enough, nor does it cover sectors such as energy efficiency services, e-mobility or energy poverty.

In Slovakia, the national operational programme mentions communities generating renewable energy and includes a strategic approach for regional decarbonisation capacities, although a concrete strategy for their development is still lacking.

Recommendations: Remove legislative and administrative barriers for energy communities and establish a strategy for network development through things like one-stop shops, raising awareness, training programmes and capacity-building activities. Expand the eligible scope of activities to include energy efficiency services, e-mobility or energy poverty.

For more detailed information on the operational programmes in all of the aforementioned countries, see our recent assessments.

All eyes on the managing authorities

In an attempt to address some of the problems in regard to energy communities observed in the operational programmes, such as the need to improve their funding, CEE Bankwatch Network and REScoop.eu published a brief explainer for authorities responsible for the management and implementation of operational programmes. It explains the concept of energy communities and their wide range of benefits, as well as providing insight into how their development can be supported at both national and local levels.

As a follow-up to this publication, we also organised an online workshop for managing authorities. This focused on financing programmes and a guidance on how to use already existing schemes to support the development of energy communities with a special emphasis on the cohesion policy.

This webinar aimed to introduce the definition of energy communities and the potential forms they might take, as well as to encourage support for their financing. It was also an opportunity for participants to share the state of play of cohesion programming in their country, as well to discuss the key drivers for the development of energy communities and the barriers they face.

The keynote speaker, Mathieu Fichter from DG REGIO, emphasised the importance of using existing technical assistance like the EU’s Energy Communities Repository, which offers various forms of support adjusted to the different needs of applicants. He also underlined the great potential for the use of territorial cooperation programmes (Interreg) for cross-border energy communities.

The lack of transposition of EU directives at the national level was often mentioned as one of the prevailing issues in the region. This creates a huge legislative and administrative barrier for energy communities to overcome.

Furthermore, participants underlined that people are reluctant and even afraid to be the pioneers of such projects in countries without any energy communities. There is also a lack of awareness of how energy communities work, how they can be established, and what their benefits are. On top of that, the lack of practical capacity and a dearth of real experts hinders the development of such initiatives.

Missed chances to provide government support for energy communities

The real potential of energy communities remains mainly in the hands of national authorities; the future of this movement depends on how the directives are transposed and implemented at the national level. Unfortunately, most of the Member States in central and eastern Europe have missed the deadline for the transposition, failed to build a legal framework and neglected to provide the necessary governmental support for the development of energy communities.

A clear picture of these omissions is explained in detail in the transposition tracker maintained by REScoop.eu.

Improving the predictability of the legal environment and providing support for pilot community energy projects are among the most important recommendations on how to improve the transposition of the EU directives. To find out more about what Member States should do to develop the Europe-wide potential of citizen-owned energy projects, see the results from the workshop organised in June 2022 in Budapest by MTVSZ-Friends of the Earth Hungary, CAN Europe and Centre for Transport and Energy Czechia.

Amulsar’s costs to human rights and threats to environmental defenders

The Amulsar gold mine in Armenia was supposed to be a different kind of mine, a better one. It even received a loan from the European Bank for Reconstruction and Development (EBRD) to help it meet the highest environmental and social standards in mine construction and operation.

But for years, Armenian activists, Bankwatch and other international organisations have shown that this effort has failed. The mine is a risk to water, nature, health – all of which should be protected under Armenian and international law. The local tourism industry and people’s livelihoods felt the negative impacts as soon as mine construction started in 2016.

Furthermore, local activists have been punished for speaking out against the project, denied the right to peaceful assembly and association, freedom of expression, access to information, and access to justice. Amulsar has also proved ripe for corruption.

Although plenty of studies have shown that the project will bring financial benefits to Armenia, no official project study has sufficiently demonstrated the immense costs of the project.

Bankwatch’s Fidanka Bacheva-McGrath speaks at an event in Yerevan in June 2022 about the costs of the project to nature and human rights.

New reports show Amulsar risks remain

Now, a new report from FIDH, CSI Armenia and Bankwatch exposes the full extent of the failure of the Armenian government; the company responsible for the project, Lydian; and current and former investors like the EBRD and the World Bank’s International Finance Corporation (IFC) to protect, respect and fulfil human rights and remedy the negative impacts of projects.

A second report from the Coalition for Human Rights in Development also highlights the failure of the development banks to prevent retaliation against those who have spoken out against the risks and actual harms caused by the Amulsar project.

Speaking truth to power in Armenia comes at a price. An unprecedented number of SLAPPs, strategic litigation against public participation, were initiated against independent experts, lawyers and journalists that opposed the project.

Once stalled, work on Amulsar set to start again

The project has appeared dormant as of late. In 2018, 3,000 locals signed a petition calling for a ban on mining in the region, which was followed by months of protests and blockades of access roads leading to the mining area. Simultaneously, activists were mounting legal challenges to the mine in national courts and international mechanisms. Lydian International collapsed, the EBRD exited the project, and Armenia began investigating.

With the onset of the COVID-19 pandemic in 2020 and the violation of the cease-fire on the Armenia-Azerbaijan border in 2021, it was not clear where Amulsar was headed. A decision on a complaint filed with the EBRD’s Independent Project Accountability Mechanism (IPAM) is still on the way.

Yet in 2022, Lydian Armenia applied for a new water use permit. Right after, the government of Armenia amended the country’s Mining Code to make it easier to bypass public opposition, despite a joint statement against this from 44 non-governmental organisations. A supplementary regulation allows mining to proceed even in cases where civil protests against the mining occur, which seems to be a clear response to the challenges the Amulsar gold mine project has faced.

It’s just a matter of time before the issue of Amulsar is back on the doorsteps of nearby residents.

Armenian Environmental Front’s Anna Shahnazaryan speaks about the project’s environmental impact assessment and the project’s costs for Armenia.

The way forward

In June, CEE Bankwatch Network, FIDH, CSI Armenia, EcoLur and several other local civil society groups met in Yerevan for a report launch event, where they were joined by members of the international community in Armenia and representatives from the government. In addition to discussing the upcoming challenges of the project, we also discussed the way forward.

Armenia needs to uphold the rights of local communities and environmental and human rights defenders, in line with its obligations under international human rights law.

The government should revoke all existing permits for the Amulsar gold mine project; initiate an independent expert assessment of the costs and benefits of the mine; ensure proper remedy for the negative impacts caused by the mine to local communities, human rights defenders and the environment; and conduct an independent and transparent investigation into the corruption surrounding the land acquisition in Gndevaz.

The EBRD and the IFC should support the Armenian government in implementing these steps. They should also develop human rights and environmental due diligence policies in order to better comply with the UN’s guiding principles, including meaningful public participation.

The Hungarian energy emergency action plan: delaying the national fossil fuel phase-out, undermining EU energy solidarity

Many questions remain for each of the seven measures, including timeline, scope and monitoring. What is already clear is that the action plan delays and reverses the national fossil phase-out, energy transformation and just transition. It also puts too much of a burden on Hungarian households and taxpayers, jeopardises complying with national and EU climate and energy commitments, undermines targets for 2030 and challenges EU solidarity. It lacks energy-saving and energy-efficiency measures, renewable energy actions and increased state support to help achieve all of those goals.

In mid-July, the Hungarian government announced an energy emergency action plan as a response to the current energy crisis. The government claimed that this plan would address supply disruptions and rising energy prices in Europe. Amidst severe concerns from various Hungarian stakeholders and public outcry, further details have been clarified, announced and published as a decree in the weeks since. The implementation of the plan begins on 1 August, which means quite a shock for all affected households and other sectors.

The whole energy emergency action plan is seemingly centred on increasing Hungary’s energy supply security, but according to national energy experts, and in our view, it is not suitable for that purpose. Instead, it serves to decrease the state budget deficit and puts most of the burden on citizens, especially households. This action plan seems risky, as it would go in part against the EU-required national commitments to energy transformation and just transition, and potentially delay related actions in Hungarian spending plans. This could also affect negotiations between the European Commission and the Hungarian government on adopting national spending plans. For example, the Hungarian recovery plan still hasn’t been approved more than one year after the first deadline, which was in spring 2021.

In the meantime, on 20 July, the European Commission published its ‘Save gas for a safe winter’ communication, recommending a 15 per cent cut in gas use and ‘energy solidarity’ measures. Member States discussed it and a compromised version was adopted by the Energy Council on 26 July, with only Hungary opposing the plan (Hungary was also amongst the countries opposing the original communication).

The Hungarian action plan is ‘individualistic’, as it does not contain any EU collaboration or EU energy solidarity. The European Commission says it was not notified on time about the plan, despite the fact that such a notification was mandatory.

Following the Commission’s recent communication and the new REPowerEU plan, all Member States need to consider measures to address the ‘winter energy crisis’. The Hungarian action plan is not a good example for other Member States – it’s short-sighted and inadequate.

In this post, we analyse each of the seven measures of the Hungarian energy emergency action plan and their consequences. You can also read NSC-FoE Hungary’s quick analysis on some points here in English.

The energy emergency action plan decree text (15 July 2022) only says what is written in the titles of the seven points below, adding to each point who the responsible minister(s) is/are and that they need to come up with the details and start implementing the plan immediately.

1. Reform (reduction) of the state-fixed cap on household gas and electricity prices

The essence of the original Hungarian energy price cap is summarised here. You can see some further analysis here, or see a summary in this Bruegel article. Earlier this year, small and medium-sized enterprises (SMEs) and municipalities were already excluded from this price cap.

According to the new, reformed price cap’s decree and side-rules, the reformed energy price cap establishes a limit on the amount of gas and electricity that households can get at reduced prices. This limit for natural gas is 1,729 cubic metres per year, or 144 cubic metres per month; for electricity, it is 2,523 kilowatt hours per year (kWh), equivalent to 210 kWh per month.

Several Hungarian experts (including Bankwatch and other NGOs), the European Commission and the International Energy Agency have all raised critical voices against the Hungarian energy price cap since its 2013 launch, describing it as unjust, against energy transformation and detrimental to the phase-out of fossil fuels. It was primarily beneficial for those with high incomes and high energy users, and it provided incentives against energy efficiency and investments in renewables, especially in residential buildings. In contrast, low income lignite/coal/wood heating users were totally excluded.

A reform or a phase-out of this end-user energy cap has been long overdue, but in its current form, the reformed energy price cap fails to fix all the issues behind it, even if it introduces differentiated support based on consumption, which is a potential step forward. Experts say it will not substantially reduce domestic gas consumption, but it could improve the balance of the Hungarian state budget. However, if energy security is really the goal, then most of the burden should not be placed on the general public through residential restrictions, which in itself won’t be enough to address the deficit or ensure energy security.

As a consequence, low-income residents living in energy-inefficient flats/houses (especially in the countryside and other socially deprived groups) would need to pay many times more for their energy costs, which would make them even poorer, both financially and in terms of energy. In recent weeks, many people who had previously heated with gas have already bought up all the available firewood and lignite/coal for their winter heating, and stoves are in high demand. Villages and cities will be choking from air pollution and dust next winter.

On a positive note, the reform seems to finally encourage households (as well as SMEs and municipalities) to invest in energy savings and renewables urgently. There is a new rush for photovoltaics (PVs), building insulation and other building materials. But their prices are high and increasing, their stocks are depleting and there is a long waiting list for the relatively few experts, technicians and installers in the country. There have been some recent support schemes with mixed results.

In other Member States, there are other tools and policies to shield consumers from rising energy prices, but the Hungarian energy cap (old or reformed) still lags behind.

2. Increase the domestic production of lignite within an immediate deadline

The timeline and scope of this measure are still unclear. For example, how long will the domestic coal/lignite production increase last? What is the new timeline of the Hungarian coal phase-out? Which Hungarian coal and lignite mines will be expanded or reopened? Will this extra coal/lignite all be sold to fuel the Mátra power plant, or will it also be sold to households and other sectors, causing massive air pollution and health damage?

The measure will mostly affect the three Hungarian coal/carbon-intensive regions, delaying their just transition process. This action should be reconsidered and planned only for the very short term, since it goes against the phase-out of coal by 2025 and Hungary’s just transition commitments in the national energy and climate plan (NECP), territorial just transition plans (TJTPs) and other related 2030 climate and energy targets.

3. Ensure that all (lignite) units of the Mátra power plant are brought back into production and that production is continuous

This measure affects and most likely changes and delays the just transition plan (and the LIFE-IP North-HU-Trans project) of the Mátra power plant and the two related TJTPs of Borsod-Abauj-Zemplen and Heves counties, and the national target of phasing out coal-based electricity production by 2025. The action may jeopardise the timely launch of the Just Transition Fund in Hungary.

The Mátra power plant has five lignite units, but unit I (the oldest unit) is not currently operational, while the continued operation of unit II would require a derogation (relaxation of the law). The plant, operated by state-owned company MVM, already makes a loss (two units + plus reserve units generate a total of 450 megawatts, costing taxpayers EUR 113 million per year), and re-expanding the operation would cost Hungarian taxpayers much more still.

The timeline and details of the action have not been communicated yet; these must be clarified and discussed in consultation with the affected parties, including those in the TJTPs, in a transparent process, resulting in revised TJTPs and ensuring that this action too is temporary and short-term.

4. Increase the domestic production of fossil gas (including unconventional) from 1.5 to 2 billion cubic metres per year

Just like enforced coal/lignite mining, enforced domestic fossil gas extraction (either conventional, like at Orseg National Park, or unconventional, like at the Mako shale gas fields) would destroy the quality of life of the local people, their livelihoods, natural resources and biodiversity, which would lead to an economic dead end. A new shale gas fever would destroy the water supply of the Great Hungarian Plain (Alföld), which is already suffering heavily from drought and water shortages. Therefore, domestic fossil energy extraction should not be expanded or relaunched, especially in water- and environmentally-sensitive areas.

Even then, this action is very expensive and would require further support (taxpayers’ money, mining taxes cut) from the Hungarian state for MOL and other gas-extraction companies. The last time something similar happened, approximately a decade ago),Gazprom-backed NIS failed badly when trying to explore the Mako fields. Last year, MOL also backed away from expanding fossil gas extraction/exploration in Orseg National Park.

5. Extend the operating life of the Paks nuclear power plant

The already extended licences for the four existing Paks reactors expire between 2032 and 2037, so the idea that they might be quickly extended is not new. This also doesn’t mean that those units will or could continue to operate. The timeline and scope of this action is still to be defined by the relevant ministers. Instead, it looks like the Hungarian government is trying to use the present situation as cover in case the Paks II project (funded by a Russian loan, to be built by Roszatom) collapses. The extension of the plant’s operating lifetime could be a pragmatic move, but a second, renewed extension is another matter.

6. Arrange for the storage of natural gas reserves necessary to ensure the next Hungarian winter gas supply by 1 November, up to the maximum level of transport and storage capacities

The 15-year gas contract between Hungary and Russia, made in 2021, entails about 4.5 billion cubic metres of gas imports from Russia. Hungary has high gas storage capacities (6.5 billion cubic metres) compared to the national gas usage of 9.5-10 billion cubic metres per year and storages are currently around 45 per cent full. The action calls the responsible ministers (and in early July, the government also authorized the state-owned energy company MVM and the Hungarian Hydrocarbon Stockpiling Association) to arrange buying further gas from the market. However, in July, the Hungarian government already made two deals that seem to contradict this action point. Firstly, it sold 500 million cubic metres of gas to Serbia (from the gas reserve, as rented storage), while Hungary is now receiving most of its gas from the TurkStream pipeline, from Russia and via Serbia. Secondly, Hungary announced that it was starting negotiations with the Russian government to buy 700 million cubic metres from Russia, which is not the same as ‘buying from the gas market’.

7. Introduction of export restrictions on energy carriers

This measure is the most confusing one; it potentially goes not only against several EU energy and free trade rules or agreements, but also against energy solidarity. Hungary imports 30 per cent of its electricity and 85 per cent of its gas. It also has a lot of interconnectors, being a transit country for electricity and gas, while it exports 100,000 to 200,000 tonnes of firewood per year. In light of all this, there are several questions to be asked. Which energy carriers are meant? How and over what timeline will their exports be restricted? And will the EU be okay with it?

Conclusion

All in all, in our opinion, each of the seven actions of the Hungarian energy emergency action plan needs reconsideration, clarification, scope and timeline. If that doesn’t happen, it will hamper the energy transition in the longer term and isolate Hungary’s energy policy from the EU’s.

Now more than ever, a wide-ranging, multi-year, complex energy renovation support scheme is urgently needed for Hungarian households, with EU funds and state funds combined. The government needs to support average/middle income households’ energy renovations (minimum 30 per cent support and refundable loans) and contribute even more to low income households (80-90 per cent grants); both groups must be incentivised towards deep renovation to avoid the lock-in effect. The Hungarian operational programmes, the national recovery and resilience plan, the Territorial Just Transition Plans and other programmes should all contain elements of this scheme. See our analysis to gain a better understanding of the overall situation.

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