Wednesday, 5 March 2014

Greece blows smoke at the EU

This article, and a related television piece, were published and broadcast by Al Jazeera English.

Greece is raising the prospect of softer greenhouse gas emissions rules for European Union members who are in recession. The economically stricken EU member floated the idea two days after the European Commission launched an ambitious new plan to curb emissions. It was an apparent bid to pit the EU Council of Ministers, which it is presiding over until June, against the EU’s executive.

Europe has set itself a goal of largely decarbonising its energy industry by 2050. The Commission’s goal is to reduce greenhouse gas emissions by 40 percent relative to 1990 levels by 2030. The main mechanism for achieving that is the EU Emissions Trading Scheme, or ETS, the world’s largest carbon market.

Beginning this year, European industry must pay for every tonne of carbon dioxide it emits (or any other greenhouse gas it emits in CO2-equivalent terms) because the ETS is to stop handing out almost a billion euros’ worth of free offsets after eight years of operation. The idea is to offset carbon emissions and encourage the use of more environmentally friendly sources of energy.

Greek environment and energy minister Yiannis Maniatis has proposed that strict adherence to these rules could cost Greece 1.1 percent of its economy and 32,700 jobs. “The obligation of European companies to buy all or part of their CO2 emissions rights leads to increased energy costs and adversely affects their competitiveness,” a statement from the ministry said. 

For Greece the rules mean an annual bill of about 540 million euros ($700mn) at current low carbon prices, a sum it can ill-afford to pay. The country has lost almost a third of its pre-crisis economy and is still in recession.

Steel yields

Last month, two of Greece’s biggest iron and steel manufacturers said they were laying off or suspending about 320 workers, partly because of stagnant manufacturing and construction sectors, but predominantly because of the high cost of electricity. Late last year Viohalko, a steel producer responsible for about 12 percent of Greece’s exports, relocated its head office to Brussels purportedly for similar reasons.

If the present situation continues, steel manufacturing [in Greece] has an expiry date,” Nikos Mariou, who manages steel manufacturer Sidenor told a national newspaper.

“Greek heavy industry pays more than twice as much for electricity as neighbouring Italy,” says Andreas Skindilias, CEO of Halyvourgiki, one of the companies laying off workers. “They pay about 32 euros per megawatt hour. We pay 80 euros. Spain and France are also cheaper. These are the countries we compete with for the North African market.”

The Greek market has fallen from 1.8mn tonnes before the crisis to about 350,000 tonnes, so exports are the industry’s only hope of survival here. “No industry in the world can survive with these energy rates,” says Skindilias.

The Public Power Corporation can point to official figures suggesting that it is one of the five cheapest European electricity markets for industry; but the special deals offered to smelters elsewhere come as discounts to official prices, says Skindilias.

Greece already suffers from a nominal unemployment rate of 28 percent, the highest in the EU, and the government appears to be galvanised by the prospect of further mass layoffs. It announced measures that could reduce energy costs by 150mn euros ($200mn). Among them is the so-called “interruptibility” measure, whereby power utilities can ask large consumers to interrupt their operations at short notice, to enable them to divert power to rising household demand. That significantly lowers generation costs and utilities are prepared to pay for the facility.

Greece may feel that its proposal to soften emissions rules will fall on sympathetic ears because it is emblematic of a broader European concern. The continent suffers from high energy costs when compared to the United States, according to the International Energy Agency, a Paris-based think tank. “Natural gas in the United States still trades at one third import prices to Europe… European industrial consumers [pay] almost twice as much as their counterparts in the United States,” says the IEA’s 2013 World Energy Outlook

The goal Europe has set itself, however, is to produce cleaner energy at competitive rates. Greece gas a particular problem here. The country’s worst carbon offender is its energy industry, responsible for over three quarters of the country’s greenhouse gas emissions (versus a global average of two thirds). Greek power plants pumped 92 million tonnes of CO2 into the atmosphere in 2011, the last year for which figures are available

Many of those emissions come from the Public Power Corporation, the former state monopoly, responsible for 70 percent of electricity production, which now faces an estimated bill of 150 million euros (ca. $200mn) for last year’s CO2 emissions. That is almost 40 euros per household – and hundreds of thousands of households have had their power cut because they can’t pay their bills. This is because the PPC still generates most of its electricity from lignite, a dirty coal that is currently Greece’s only abundant energy resource. In fact, Greece is the world’s 15th largest producer of coal, coming third in the EU after Germany and Poland.

The PPC will not divulge comparative figures, but claims that lignite-derived electricity is far cheaper than that generated from imported oil and gas. It is so committed to the fuel that it is preparing to invest 1.4 billion euros ($1.8bn) in a new plant in northern Greece.

The Greek chapter of the World Wildlife Fund commissioned a study showing that the new plant could be nonviable once heavy industry weighs into the carbon market, raising the price of carbon offsets. 

“This study has shown that in a few decades’ time these units will even have negative cashflows under specific circumstances, and might also require tax exemptions and state support in general,” says the WWF’s Michalis Prodromou. “That is due to the change of the economic and energy environment as we head towards high energy efficiency policies, increased renewable energy penetration and so on.”  

The WWF calls on Greece to place greater emphasis on energy conservation, and to place a higher target than the EU-mandated 27 percent on energy from renewable sources.

Delayed deregulation

Lignite fuelled Greece’s post-war recovery, and many people in the power industry argue that if Greece stands a chance of preserving its heavy industry, lignite must continue to form a part of its energy mix for the foreseeable future. But the record shows that its dominance as an energy source, and the PPC’s exclusive right to mine it, have acted as a brake on cleaner energy and a functioning energy market.

Greece effectively delayed EU-mandated liberalisation of its electricity market by six years, bowing to political pressure from the PPC’s labour union. Private investment licensed since 2001 has been in cleaner gas-fired plants and renewables, but these have had difficulty competing with the PPC because of the cheapness of lignite. The result was that many independent power producers pulled out of their investments.

In 2008 Greece became the first country to be suspended from emissions trading under the Kyoto Protocol, the world’s first treaty reining in greenhouse gases. The suspension was punishment for inaccurate reporting of carbon emissions.

Environment minister Yiannis Maniatis has been notably silent on the softening of emissions rules he requested. Both he and deputy minister Asimakis Papageorgiou turned down repeated requests for interview for this story, as did the PPC. If history is a guide, the government may be trying to protect the value of the PPC as it grooms the company for privatisation next year. Greek governments have spent years protecting state monopolies. They are still coming to terms with the European challenge to protect industry and the environment. 

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