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European rivers on RED alert: the VEZ Svoghe case, Bulgaria

More than half of European rivers are on red alert – failing to reach good health as required until 2015 by the Water Framework Directive. Yet in parallel, the Renewable Energy Directive (RED) has enabled numerous harmful hydropower projects to be counted as renewable energy and in many cases to benefit from renewable energy incentives as well – even when they have breached EU law. 

If the ongoing revision of the Directive doesn’t improve the requirements for water and biodiversity protection, the goals of the EU 2030 Biodiversity Strategy to stop deterioration of all protected habitats and species and restore 25,000 km of free-flowing rivers by 2030 will be unattainable. 

The VEZ Svoghe project on the Iskar River just north of Sofia, has already led to serious environmental and social impacts, which show the need to explicitly link the RED with requirements for compliance with EU environmental law. With five out of nine originally planned hydropower plants built, fish migration has been obstructed and part of the Vrachanski Balkan Nature Park has been flooded. 

EU officials have pointed out numerous times that there should be no trade-offs between reaching the climate goals and protecting biodiversity. However, many hydropower plants put into operation since the RED was first adopted in 2009 show a different picture. Although some lessons have been learned in the last decade, the environmental harms remain and need to be remedied. No space for new harm should be allowed by the RED that is currently under revision.

As Bankwatch partner groups from Bulgaria have been informing the EC for years, the VEZ Svoghe cascade was approved, built and now operates with serious infringements of national law, as well as the EU Habitats and Water Framework Directives. Yet it still counts towards Bulgaria’s renewable energy targets and has received renewable energy incentives. In reality there is nothing to prevent such plants receiving such subsidies, as the RED has no provisions to ensure that legal breaches result in a halt to incentives.

Violation of national law

The Svoghe cascade was planned and partially constructed within the Vrachanski Balkan Nature Park in an unprecedented violation of Article 33 of Bulgaria’s Protected Areas Act which stipulates: 

“In nature parks it is forbidden to carry out: (…) activities and construction that are not allowed by the decree declaring the park, the park management plan and the development and technical plans and projects”. 

In the park declaration decree from 2003, hydropower construction is not allowed, nor in the first management plan approved after the EIA decision, nor in any other park document. Nevertheless, according to the project EIA, the total area of the installations that fall within the boundaries of Vrachanski Balkan National Park is 11.085 hectares (…), and includes parts of the Lakatnik, Svrazhen,  Opletnya, Levishte and Gabrovnitsa plants. 

The EIA was opposed by the Regional Environmental Inspectorate, but approved by the national Ministry of Environment and Waters. The Lakatnik, Svrazhen and Opletnya plants, financed by the EBRD and put in operation between 2008 and 2013, have already destroyed more than 6 hectares of the park.

Moreover, all the dams are built in the river bed, which is state property, without any concession agreement or other rights to build on state land. The Balkanka Association has alleged that such constructions are illegal according to several national laws and in another region, this has led to the first dam removal in Bulgaria. In November 2021 the Sofia regional prosecutor’s office refused to take action on the legality of the construction permits of the Svrazhen plant, and Balkanka is appealing the decision. 

Opletnya HPP, photo: Balkanka Association

Violations of the EU Habitats Directive

In September 2008, during low water, the Lakatnik hydropower plant discharged a large amount of silt deposited behind the dam. At least 18 km downstream all aquatic organisms and fish died, a fact reported by the Regional Environmental Inspectorates of Sofia and Vratsa. VEZ Svoghe was only fined after the incident but didn’t remedy the damage done. 

Even after this incident, the impacts of the cascade on the Natura 2000 network were not evaluated in the permitting procedures for the other plants. In 2010, the Regional Environmental Inspectorate concluded for the three plants of the second phase of the cascade, that an Appropriate Assessment (AA) is not necessary as there would not be significant negative impacts. This is in breach of the Habitats Directive since they would clearly damage several sites.

All the plants except Tserovo and Prokopanik are located within Natura 2000 sites (three Habitats Directive and two Birds Directive sites) and all nine plants have impacts on another three sites downstream on the Iskar River.

Plant Phase Within Natura 2000 site
Lakatnik 1 BG0000166 Vrachanski Balkan,

BG0002053 Vrachanski Balkan
Svrazhen 1 BG0000166 Vrachanski Balkan,

BG0001042 Iskarski prolom – Rzhana,

BG0002053 Vrachanski Balkan
Prokopanik 2 –
Tserovo 2 –
Opletnya 2 BG0000166 Vrachanski Balkan,

BG0001042 Iskarski prolom – Rzhana,

BG0002053 Vrachanski Balkan
Bov – Yug 3 BG0001040 Zapadna Stara planina i Predbalkan, BG0002005 Ponor
Bov – Sever 3 BG0001040 Zapadna Stara planina i Predbalkan, BG0002005 Ponor
Levishte 3 BG0000166 Vrachanski Balkan,

BG0001042 Iskarski prolom – Rzhana
Gabrovnitsa 3 BG0000166 Vrachanski Balkan

Violations of the EU Water Framework Directive

Heavily polluted in the last century by industry and wastewater, the water status and biodiversity of Iskar started recovering after the fall of the Iron Curtain. But shortly after Bulgaria joined the EU, more than ten new hydropower plants were built downstream from Sofia, including five from the VEZ Svoghe project. The status of the river deteriorated significantly, converting long river stretches into heavily modified water bodies. 

The River Basin Management Plan was approved in 2009 with the main objective to achieve, maintain and improve the ecological status of rivers by 2015 in accordance with the Water Framework Directive (WFD). For this objective the Plan sets out programs for prevention and reduction of anthropogenic pressures and impacts on water resources. 

Among them are two which prohibit the construction of new hydropower in the protected areas under the Water Act. All Natura 2000 sites in the Iskar Gorge are classified as such and for each of them a special ban on hydropower is also envisaged in the Plan. A general prohibition on new hydropower in Natura 2000 is also separately foreseen in the Environmental Assessment of the RBMP which is also legally binding for the administration. Obviously the cascade does not comply with any of these bans.

Currently the VEZ Svoghe case is part of an EU pre-infringement procedure against Bulgaria and other countries – called an EU Pilot – for lack of implementation of the Water Framework Directive.  

Joined-up policy needed to safeguard biodiversity

The updated Renewable Energy Directive needs built-in biodiversity protection. In a situation of biodiversity crisis it makes no sense to allow incentives for hydropower projects – or any other renewable projects, for that matter – which have only been allowed to go ahead with violations or exceptions provided for in the Water Framework Directive and the Habitats Directive. Incentives must be used sparingly, and only for those projects which truly deserve it.

The Svoghe hydropower cascade is an ongoing serious environmental crime that needs to be solved and unless the new RED includes effective safeguards against such projects, we will continue to see them further eroding the EU’s already ailing biodiversity.

 

This publication was produced in collaboration with EuroNatur in the framework of the joint research and advocacy work on hydropower finance and subsidies.

Heated households based on heat pump technology claim it is a smart, clean and comfortable investment

In recent years, governments in the Western Balkans, with the help of international financial institutions, have started offering citizens financial support in a bid to step up the deployment of cleaner household heating solutions and energy efficiency measures.

Many programmes have focussed on promoting pellet-based heating systems, or solar thermal technologies, alongside energy efficiency solutions. But not enough attention has been given to heating pumps, despite them being one of the most promising, low-carbon and energy efficient technologies.

One reason for that is simply that heat pumps can be expensive. Installing a heat pump in a 2–3-bedroom home would mean spending anywhere between EUR 8000 and EUR 15,000, depending on the heat source and the building’s existing infrastructure. Solar thermal systems, for comparison, would cost half as much for the same size house. Yet, an investment combining heat pumps and solar panel heating systems could be returned in four-five years, and it comes with a dramatic reduction of greenhouse gas emissions.

Another reason heat pumps might not be as popular as they should be is simply because many don’t understand this technology. Many home owners simply refuse to believe that heat pumps are capable of bringing heat from outdoor air or water even when the air temperature is below zero. But this is no science fiction.

Installing a heat pump in your home comes with real economic, environmental and social benefits. Homeowners in the city of Tuzla in Bosnia and Herzegovina, who used a subsidy scheme that covers half of the purchase and installation costs of fitting homes with heat pumps, now say it was absolutely worth the investment.

“I would like to call on all people who consider warming their homes with heat pumps to do it because it is in their interest,” says Izet Husic. “Life quality is much better both in winter and summer since heat pump can bring heating or cooling, so you are solving with one solution both problems of heating and cooling for economically acceptable costs.”

These people said heating their homes with heat pumps has brought comfort and safety and even made their heating bills three times lower, compared to households using coal or electricity, and twice lower than those using pellets. 

In fact, the price of biomass can be particularly volatile. Local non-industrial pellet markets have already proven unstable as they are depending on subsidy schemes that come and go. As a result, the quality of pellets can also vary widely, in turn expediting the wear of domestic furnaces and increasing maintenance costs.  

Heating with coal, certainly if it’s of low quality, also requires a serious effort. Think about transporting it from the mine or market, cleaning the chimney, frequently painting your house, cleaning the dust. All of these can be a serious burden, especially for the elderly. Heat pumps, however, are much easier to maintain than other forms of heating systems. 

Decarbonising individual and collective heating and cooling systems relies on diversified renewable energy sources and the introduction of smart and efficient grids and buildings. For this to happen governments should make these technologies accessible and affordable, either by increasing subsidies or other financial means. This will also vital if countries are to meet their renewables and emissions targets. 

The International Energy Agency projects that by 2045, heat pumps will be responsible for nearly half of the global heating. In Vienna, for example, a third of the residential buildings are already heated with heat pumps based on the ‘water to water’ technology. In the UK, the authorities are drawing up plans to fund the installation of heat pumps in 90,000 homes across the country. 

The beginning winter is a reminder that governments in the Western Balkans should also ensure that more households can keep warm with clean, efficient and low carbon heating systems.

Never mind the protected areas!

When the loan for construction of three small hydropower plants on the Mojanska River was signed in 2019, the Komovi Regional Park was already four years old. 

Yet there is only one single sentence in the environmental impact assessments (EIAs) of Mojanska 1 and Mojanska 2 plants admitting that the plants are ‘located within the boundaries of the regional nature park’. 

The only thing that follows is: ‘Therefore, it is necessary to apply all measures to protect all segments of the environment’. There is no explanation about the Park’s management regimes and no reference to the fact that part of the cascade is in zone 2 of the Park where only traditional and temporary construction is allowed. For Mojanska 3, the plant that was constructed deepest in the Park, an EIA was not even carried out because it is less than 1 MW, and an EIA was automatically not required according to the national legislation. EU law, on the other hand, at least requires such projects to be screened to check whether they need an EIA. 

The hydropower cascade is financed by the European Investment Bank (EIB) – not directly but via the Investment and Development Fund of Montenegro (IDF). A third of the EIB’s lending is hidden behind such financial intermediaries. The fact that the EIB leaves project appraisal to the intermediaries means that environmental assessments are often not done properly, if at all. A lack of monitoring during construction and operation is also more than common for such investments. 

Dry river bed

In 2020, the first year of operation of the Mojanska plants, the riverbed was left dry, leading to irreversible impacts to fish and other aquatic fauna. In a statement at the time, WWF Adria commented that: “It is very uncertain whether anything from the living world can survive. It is of special importance to point out that the Mojanska river has been declared a protected fishing area, as an area of the greatest importance for the spawning of brown trout. This means that this river was a natural breeding ground for trout before the construction of the small hydropower plants, while now the river is permanently damaged and it is most likely that this species will completely disappear in it“.

Our field visit on 1 October 2021 proved more of the same. The three plants, Mojanska 1, Mojanska 2 and Mojanska 3, had barely left any water in the river and completely block fish migration. The valley now looks more like an industrial site than a protected area. 

Fish pass more suitable for kangaroos than for fish

According to the Montenegrin law that was in force when the Mojanska plants obtained their ‘water conditions’ permits, leaving only 10 percent of the annual average water flow in the river should be enough to support wildlife, whilst installing anything that the investor calls a ‘fish passage’ was considered enough to ensure fish migration. Doesn’t matter that the ones constructed on the Mojanska river are more suitable for kangaroos than for fish – the stairs are too steep and they would have to jump from stone to stone in order to get to the other side of the dam. Moreover the small amount of water in the river would make it unlikely that fish would even reach the beginning of the fish pass.

But even the best fish passages in the world cannot prevent negative impacts on aquatic animals. Numerous scientific studies show that more than half of fish cannot manage to use the fish passages, especially for species other than trout and salmon. In addition, every fish passage needs monitoring to ensure that it is operating as planned, and obstructions such as driftwood are regularly removed. Such regular monitoring is impossible in remote areas, and there is no incentive for the operator to ensure the fish pass is functional, as every litre of water in the fish passage means less income. Even if a fish passage is moderately functional, it does not replace lost habitat. For almost its entire length the Mojanska river now receives 10 percent of the water it used to have before the plants were built.  

Wishful thinking on otter impacts

The Analysis of Impacts chapter further illustrates the poor quality of the EIAs. The otter (Lutra lutra) is the only animal for which actual fieldwork was carried out – one day for Mojanska 1 and one for Mojanska 2. Two fieldwork days for a cascade that costs EUR 5.9 million. 

The conclusions completely ignore the fact that 90 percent less water in the river would mean less fish for the otter: “During the exploitation phase, the planned projects for the construction of SHPP Mojanska 1 will not have any special negative impact on otters, since the project envisages the construction of fish passages, which will enable the migration of fish.” 

Inspectorate visits only after heavy rains

Immediately after our visit in October, WWF Adria’s partner in Montenegro, NGO Eco-Team, notified the national authorities and an environmental inspector visited the plants shortly after heavy rains. Unsurprisingly, on 12 October the inspectorate reported that:

“…the Mojanska riverbed is not dry after the water intake, that the water entering the Mojanska riverbed is flowing from the fish pass, that the flow is measured because the “limigraphs” are in operation (…). The flow reports are in accordance with the Law on Waters”.

It is not clear whether it was a coincidence that the inspectorate visited only a week after being notified and only after heavy rain, but this clearly weakens the inspection’s effectiveness. Such scenarios are played out time and again across the whole of southeast Europe, preventing the worst impacts from careless construction of small hydropower from being mitigated.

EIB environmental and transparency standards on intermediaries must be tightened

As with other small hydropower projects from Bulgaria, Serbia and Croatia, the financing of the plants via intermediaries meant that the public could not bring their concerns to the EIB before the damage was done, because they did not know it was involved. The EIB’s involvement in Mojanska was revealed to the public only in March 2020, after several information requests and a complaint to the EIB’s Complaint Mechanism by Bankwatch. 

This case illustrates the inadequacy of the EIB’s environmental standards for intermediated projects. Neither the national authorities nor the Investment and Development Fund of Montenegro are equipped to ensure project assessment and operation in line with EU law – a situation worsened by Montenegro’s entrenched corruption, as highlighted by the US Special Representative for the Western Balkans last week. 

The Mojanska River is not only located in a regional nature park, but also in an Emerald network site under the Bern Convention and a proposed Natura 2000 site under the EU Habitats Directive. There is probably not a single fish or otter left in the river, but the Montenegrin inspectorate can find nothing wrong. A project like this would never have been approved in EU member states. 

The new EIB standards on Financial Intermediaries and Biodiversity proposed in summer 2021 unfortunately do not improve the transparency, due diligence and monitoring of projects like Mojanska. This must be changed if the Bank is to avoid causing more damage to rivers. The EIB also needs to introduce the concept of no-go areas for financing, such as national and natural parks, areas with many endemic species, free-flowing rivers, Emerald  sites under the Bern Convention, proposed or actual Natura 2000 sites and pristine forests. 

This publication was produced in collaboration with EuroNatur and RiverWatch in the frame of the Save the Blue Heart of Europe campaign, with financial support from MAVA Foundation.  

A well-designed EU Carbon Border Adjustment Mechanism can help drive decarbonisation in the Western Balkans

This week sees the end of the European Commission’s public consultation on its proposed Carbon Border Adjustment Mechanism (CBAM), which aims to tackle the concept of carbon leakage. 

The idea is that as the EU’s increasingly effective climate action raises the cost of fossil-fuel energy generation and consumption, more companies might be tempted to move production abroad to avoid paying a carbon price, so the CBAM would include this cost into certain carbon-intensive products imported into the EU, including electricity.

Carbon leakage is so far theoretical for most industries in the EU, and has been over-used as an excuse to subsidise carbon-intensive industries by allocating Emission Trading Scheme (ETS) allowances for free, bringing windfall profits. 

But for the power sector, the import of carbon-intensive electricity from the Western Balkans and Ukraine is already ongoing every day, undercutting EU producers and belching out choking air pollution. 

CBAM much-needed for the power sector

Electricity imports from Europe’s neighbours in the Western Balkans and Ukraine are not due to intentionally moving production outside of the EU, but rather make use of the artificially low prices in these countries. 

Not only do most of the countries not apply any carbon pricing, but also all those who use coal have failed to comply with the provisions of the Large Combustion Plants Directive, which have been binding under the Energy Community Treaty since 1 January 2018.

Our recent report shows that between 2018 and 2020 coal power plants in the Western Balkans caused an estimated 19,000 deaths, with almost 12,000 of these due to non-compliance with the Directive. And in 2020, the Western Balkans’ 18 coal plants emitted two and half times as much sulphur dioxide as all 221 coal power stations in the EU combined.

On one hand the EU benefits from these deadly breaches – between 2018 and 2020 it imported around 8 per cent of the Western Balkans’ coal-based electricity. But it also pays a high price, as over half of the modelled coal pollution-related deaths took place in the EU.

Efforts are ongoing to introduce carbon pricing into the Energy Community Treaty, but this will take time. The CBAM has the potential to take effect much earlier, and this opportunity must be seized.

Free ETS allowances must end as soon as practically possible

The CBAM’s effectiveness depends very much on how it is designed. The European Commission’s proposals state that the CBAM will replace free allowances under the ETS, but allows a whole ten years starting from 2026 for this to happen. 

It is unclear why it needs to take this long. A revision of the ETS is ongoing in parallel and needs to end free allocation in all sectors as soon as practically possible, not in 15 years’ time. 

This timeline is anyway confusing with regard to the power sector, as free allocations for the EU’s less wealthy countries anyway have to end by 2030 at the latest, and the ETS revision needs to bring this forward significantly.

Revenues must be used for a just transition

Another key issue is the use of the revenues from the CBAM. So far they are destined to end up in the EU budget. If they are to add value, however, they really do need to be used for climate action. 

In the case of power sector revenues, propose that they should contribute towards a Just Transition Fund for the Western Balkans and Ukraine, which is urgently needed but has not yet been set up.

At Bulgarian coal mine, a climate and human rights crisis unfolds

In October Bulgaria’s Maritsa East Mines celebrated a record 1 622 556 tonnes of lignite extracted. Rising gas and electricity prices at the start of winter have provided a boost to the inflated esteem of the coal industry as one of strategic national significance. 

Meanwhile at COP-26 in Glasgow, the financier of this coal bonanza, the European Bank for Reconstruction and Development (EBRD) boasted of its climate action and alignment with the Paris Agreement. Negotiations at COP-26 resulted in the Glasgow Climate Pact’s call for accelerated phasing out of coal and subsidies for fossil fuels. 

Since 2016 the Maritsa East mine has been expanding with grant support from the EBRD. At its edge the village of Beli Briag is still not fully resettled. Pressed by the mine coming, the last remaining people in the village are preparing for another winter in their abandoned village. Without fair compensation, they cannot move to another place or restore their standard of living. 

So property owners in the village, together with civil society organisations, requested that the EBRD’s Independent Project Accountability Mechanism (IPAM) review the never-ending resettlement process for compliance with the bank’s policy requirements.  

Failed mediation 

The bank’s mechanism had previously facilitated a mediation between village complainants and the Maritsa East Mines company (MEM). The deadline for completing voluntary resettlement was December 2019. The dialogue between the parties stalled and the threat of forced expropriation loomed in the start of 2020. However, in the middle of a COVID lock-down in August 2020, when uncertainties for Beli Briag households were greater than ever, IPAM closed the mediation.  

The main bottle neck in the mediation process was MEM’s claim that Bulgarian law was not compatible with the EBRD’s standards for resettlement and livelihood restoration. The company refused to discuss the details and possible options for what this might look like, so fair compensation was unattainable.  

The bank’s legal counsel and independent third-party consultants also failed to provide guidance on how the EBRD policy could be reconciled with the provisions of Bulgarian law. 

Importantly, MEM had agreed with the bank a Resettlement Action Plan (RAP) that committed the mining company to implement EBRD standards. These standards require restoration or improvement of living conditions.  

Moreover, the Bulgarian Energy Holding (BEH), the parent company of MEM, also committed to implement the bank’s environmental and social standards as conditionality for two EBRD loans in 2016 and 2018 totalling EUR 180 million. The investments are a good example of EBRD support for coal-heavy utilities.  

Beli Briag complainants repeatedly appealed to the Ministry of Energy and BEH to support a solution through the mediation process. These calls remained unanswered, suggesting that the EBRD loans came with no responsibilities attached. Did the EBRD expect BEH to play a role? Did the bank leverage the support of its client BEH to ensure fair resettlement of Beli Briag? These are questions IPAM is expected to look into. 

The Bulgarian villagers’ chronic limbo over coal mine expansion continues unresolved. The remaining people in Beli Briag live with constant vibrations, noise and dust from the huge open pit mine. Their water supply and electricity are regularly interrupted. There are no shops or public transport. The village is overgrown and not maintained properly, so the remaining houses and farms are threatened by summer fires.  

There is a suffocating sense of injustice that the subsidies to the coal industry are not only exacerbating the climate crisis, but they also result in violation of the basic human rights to housing and normal living conditions. 

At the edge of the largest coal basin in Bulgaria the climate crisis is a human rights crisis. Now people are asking for justice. They expect IPAM to hold the EBRD and its clients in Bulgaria to account. The bank can still act to ensure an effective remedy through fair compensation for complainants. 

A lifeline to a dying coal industry 

The role of public finance in this crisis is evident. The EBRD presents itself as a climate action champion, as it masterfully obscures fossil fuels subsidies with new types of corporate finance, crisis recovery funds and projects for improvements of efficiency of fossil fuel infrastructure. These EBRD investments often result in capacity increases and lifetime extensions of potentially stranded fossil fuels assets. The role of the bank in the energy sector in Bulgaria is a case in point. 

In 2016 the Maritsa East Mines company was desperately looking for money to buy new excavators. The project would be the first heavy equipment modernisation at the coal mine in twenty-six years. Half of the investment of EUR 25.8 million for the project was granted to MEM by the EBRD. The bank manages grants from a fund established by the European Commission to compensate Bulgaria for decommissioning old reactors at the Kozloduy nuclear power plant (the Kozloduy International Decommissioning Support Fund, KIDSF). 

When a commercial loan was not possible, MEM implemented the modernisation project with its “own participation”. But it’s a mystery where the money came from. Who would lend to a dying industry that runs on debt and losses for years?

EBRD came to the rescue again. In 2016 the bank invested Euro 80 million of the Euro 550 million bond issue by the Bulgarian Energy Holding (BEH). This investment refinanced a bridge loan recently incurred by BEH, whose proceeds supported the commercial liabilities of BEH’s key subsidiary National Electric Company (NEC). 

The EBRD loan through the bond issue enabled NEC to pay back its debt to the two privatised thermal power plants, Maritsa East 1 and Maritsa East 3. Once the plants received the money for electricity they sold to NEC, they could pay back their debt to MEM for the coal supply. Then MEM could pay back its debts, including EUR 65 million debt to BEH. And it could modernise the excavation technology at the lignite mines, so they could reach new records of extracting coal.  

A mountain of debt to dig and burn more coal 

The EBRD was not blind to the sorry state of the coal sector in Bulgaria. Its involvement was intended “as part of a comprehensive reform plan aiming to restore the financial viability of the electricity sector and to promote electricity market liberalisation in Bulgaria”. Then in 2018 the EBRD invested a further EUR 100 million in the seven-year EUR 550 million senior unsecured bond issuance, in order to support improving the financing structure for BEH.  

The two BEH projects received derogations for full environmental and social due diligence from the bank’s board of directors. According to the agreements between BEH and the EBRD, however, the loan contracts included environmental and social conditions, committing BEH to EBRD’s safeguards policies. Furthermore, the EBRD funds could not be used for coal-powered plants or nuclear plants. Importantly, the limitation did not cover BEH’s coal mines. 

At the time the EBRD could no longer invest in coal power, so the BEH loans are a curious example of fossil fuels subsidies that have shifted from direct project finance, to more obscure forms of corporate finance.  

This was tried and tested also in the energy sector of neighbouring Serbia and in Central Asia. The pandemic only brought more opportunities for corporate level support to fossil-fuels heavy utilities, this time under the guise of recovery funds for existing clients. 

The IPAM is not the mechanism that can hold the EBRD accountable on the hidden subsidies for fossil fuels, nor on the results of the energy sector reforms in Bulgaria. What it can do is to reveal the human rights violations that result from this type of hidden fossil fuels investments and to suggest an effective remedy.  

IPAM’s investigation should remind decision-makers at the EBRD that corporate level loans for energy utilities are not exempt from the responsibility and commitments of the bank, its shareholders and its clients to safeguard people and the environment. If they can manage this, there’s hope for the climate, too. 

Updated Renewable Energy Directive needs built-in biodiversity protection

This week sees the closure of the European Commission’s consultation on the draft revised Renewable Energy Directive (RED II), which proposes a new EU renewable energy target of at least 40 per cent by 2030 and slightly tighter sustainability criteria for biomass.

Renewable energy will play a crucial role in achieving the EU’s key target of reducing greenhouse gas emissions by 55 per cent by 2030. But tackling the climate crisis has to go hand in hand with tackling the biodiversity crisis.

And this is where a more joined-up approach is needed. No form of renewable energy is impact-free. Hydropower and bioenergy in particular have caused serious environmental damage, but also many other renewable energy projects built in biodiversity-rich areas. 

Forest biomass subsidies are rightly receiving massive attention due to the climate and biodiversity impacts of burning trees. This is likely to continue as the Commission’s proposals are too timid to address these issues, and fail to prevent incentives schemes supporting primary woody biomass.

Europe’s rivers need renewed action

But neither do the proposed updates to the Directive address the environmental impacts of other types of renewable energy or take into account the goals of the EU 2030 Biodiversity Strategy. 

Within the EU, by 2018, no fewer than 60 per cent of rivers had failed to reach good health, among others because of hydropower construction. The EU’s lakes and rivers should have reached ‘good status’ by 2015 under the Water Framework Directive, but more than half have been subject to exemptions – often with weak justification according to the European Parliament.

This has led to calls for renewed action, among others in the EU 2030 Biodiversity Strategy, which aims to restore 25,000 km of free-flowing rivers by 2030.

But while many EU countries seek to restore their rivers, some are still building new hydropower. In recent years, their trail of destruction has been particularly felt in biodiversity-rich southeast Europe, where around a third of hydropower projects planned or built since 2005 are in protected areas or internationally recognised areas of high biodiversity value. 

Most of the projects are of small capacity, but high in damage due to their locations in pristine natural areas. Their rampant development has been driven by disproportionate support via feed-in tariffs – a form of subsidies that is now allowed only for the smallest projects in the EU.

Renewables incentives must be truly conditioned on EU law compliance

In the EU, renewable energy can in theory only be subsidised if it is in line with EU environmental law. But in practice, there are insufficient mechanisms to ensure this condition works. By the time any breaches of the Directive have been established, subsidies have usually long since been approved, and there is no mechanism to make sure they are discontinued.

Several projects in Croatia illustrate this problem. The Ilovac and Dabrova Dolina hydropower plant projects underwent design changes after their environmental impact assessments were carried out, causing more damage to the river ecosystems as a result. The Croatian authorities have been reluctant to act and the issues remain unresolved. Yet both plants are still receiving feed-in tariffs paid for by the public.

The country’s wind sector is also under scrutiny, with the European Commission sending a letter of formal notice in May 2020 for repeated infringements of the Habitats Directive resulting from the  authorities’ failure to properly assess the effects of 11 wind farms along the Croatian coast on the environment. Even though the case is not yet resolved, the Croatian authorities are free to continue handing out incentives to these and other renewable installations as they wish.

A quick look at the list of nature-related EU infringement procedures currently ongoing shows that Croatia is far from unique. Several Member States are currently under investigation for failing to adequately protect Natura 2000 areas or properly assess environmental impacts of certain activities – failures which could certainly result in needless damage by poorly designed renewable energy projects.

As a result, Bankwatch is calling for the Renewable Energy Directive to explicitly link renewables support schemes with compliance with EU law. It makes no sense for the European Commission to open infringement procedures on one hand while countries can continue to pay incentives to the same sectors – and in some cases the same projects – which are under investigation.

No more subsidies for projects that make use of EU law exemptions

Even where countries are not in actual breach of the Directives, in a situation of biodiversity crisis it makes no sense to allow incentives for hydropower projects which have only been allowed to go ahead due to the exceptions provided for in the Water Framework Directive. Nor does it make sense to allow incentives for any renewable projects which have been allowed to go ahead only due to the exceptions allowed in the Habitats Directive. Incentives must be used sparingly, and only for those projects which truly deserve it. 

The Renewable Energy Directive already prohibits incentives for the incineration of biodegradable waste in countries that do not meet their separate waste collection obligations – an excellent example of joined-up policy. Equivalent provisions for other forms of renewable energy would help to ensure appropriate project design and siting, increase public acceptability, and incentivise better application of the EU environmental law. 

We don’t have time or money to waste on subsidising damaging projects and we certainly can’t afford the public backlash that this brings. Time is running out to tackle both the climate and biodiversity crises, so incentives schemes must be bang on target.

This publication was produced in collaboration with EuroNatur in the framework of the joint research and advocacy work on hydropower finance and subsidies.