What’s in store: the road to decarbonisation

A post-G7 look at Bulgaria’s energy transition

So it’s good news from Cornwall. The leaders of the top seven industrial democracies—and some guests—met there the week before last week in this year’s G7 summit. And they’ve proved unexpectedly flexible. Despite pressure from eco-activists and the Big Green lobby, they didn’t ban international funding for coal-based energy projects that do not feature carbon capture and storage (CCS) technologies. Apparently reality has started to sink into the minds of the West’s leaders as rising energy and metal prices and increased coal consumption make headlines. And coal-fired power with CCS is, of course, just fine, according to the summit communique.

Decisions taken by the G7 do not affect the countries that pollute the most – the format to address those issues is the G20. Still, Western leaders seem to have begun to wake up to the consequences of rushed climate policies on the welfare and security of EU and NATO countries. The decarbonisation burden overwhelms the resources of many member countries, threatening critical social, political and economic balances.

Central and East European (CEE) countries have reached a tipping point for reconsidering their role and interests in a European Union that systematically ignores their calls to reason and common sense. No new UK-style “exit” is imminent now or likely to happen in the near future. But if EU policies fail to gain public support and are perceived as Brussels-imposed diktats, centrifugal forces will gain the upper hand.

The end of the affair

Now, there’s something that Western Europe—”Old Europe”—really doesn’t understand. Following the collapse of the Soviet Union, perceptions of the EU in CEE countries were romantic: it was the global dream-team to join. But there’s very little romance left now and it’s eroding quickly. Even more prosaic considerations are less compelling.

EU funds used to be the pot of gold at the end of the rainbow. But they matter a lot less now, for at least three reasons. First, as CEE countries catch up with their Western partners, those funds represent ever-smaller percentages of their respective GDPs. Second, the new Recovery and Resilience Funds have many strings attached, which call into question the balance between costs and benefits. Third, EU funds have turned out to have some very nasty ‘side-effects’ of their own: in countries like Bulgaria, they have fattened a new parasite class of political mediators and corrupt politicians, supported and funded by Germany and the European People’s Party (EPP)—the EU-wide club of centre-right political formations. And the Brussels bureaucracy has been ultra-lenient to the corrupt.

All this has been detrimental to support for the EU. Among Bulgarians, it has plummeted by thirteen percentage points—to a current level of just 65%—since the country joined the Union in 2007, according to the Center for the Study of Democracy Survey.

The EU’s global status is declining in parallel with its collective competitiveness, prosperity and security. And loyalty to the EU team is not a foregone conclusion as countries engage in separatist deals—Germany with Russia, Hungary and Greece with China. So it is a matter of time before member states start looking for individual solutions—solutions that make them competitors rather than team-members—by linking their fortunes to the new centres of global power.

Prime Minister Mateusz Morawiecki of Poland, one of the most pro-EU countries, has mooted the idea of considering a UK-type exit if Brussels ignores Warsaw’s interests. Although the chances of this are small, this level of exasperation speaks for itself. Moreover, despite unprecedented EU funding to mitigate energy price hikes, climate policies will further strain relations between CEE and the rest of the EU.

How green is my tally?

And there’s something very odd going on in the way the EU does its sums about carbon emissions. Recently I drove across Bulgaria and everything was green –mountains, plains, fields, forests, and vegetation. All flourishing, all busily absorbing carbon dioxide (CO2). However, total emission accounting and management on a country-by-country basis is absent from the EU climate playbook. The Union does not recognise national net balances of emitting and absorbing agents, including industrial, household, forest, agriculture, water, transport, and the various other sources.

Science tells us that one hectare of forest absorbs 10 tonnes of CO2 emissions per annum (that’s the average for pine and oak trees: acacias are a special case). Bulgaria has 4.4 million hectares of forests, which puts the country’s total forest CO2 absorption capacity at 44 million tonnes, well above the 40 million tonnes of CO2 that the country has to buy each year to allow industries to operate. Of course, such a simplified net emission balance sheet does not take account of seasonal variations, nor of other vegetation and green mass that absorbs CO2 (agriculture, pastureland). But in these Bulgaria, in all likelihood, is a net CO2 absorber, not a net emitter. Yet the country has to spend more than € 2 billion on buying emission permits (EUAs) this year.

These articles analyses and comments are made possible thanks to your empathy and contributions, which are the only guarantors of independence and objectivity in our work. The Alternatives and Analysis team.

“Climate change” is an all-encompassing term. It covers cold weather and hot, rain and drought, storms and still air. It’s a complex subject. And, yes, it’s a problem—though not quite such an urgent problem as the climate alarmists would have us believe. But the essential truth is that Bulgarians are taxed for industrial pollution in China.

My homeland has become much greener, environmentally friendlier, with cleaner air and cleaner waters. But the climate alarmists don’t seem to realise this—or if they realise it, they don’t care. Instead, they descend on Bulgaria like Martians, and set about trying to monetise fear and guilt, destroying wealth and security without putting in place a growth-compatible and pragmatic plan to replace them.

We can do better. Instead of lamenting, we can proactively engage in reforestation and creative management of national emission balances. We can add renewables at a pace and in a realistic assortment that would keep energy prices down, taking into account the system costs involved in their balancing and decommissioning.

In fact, a lot has been done already, though not all deliberately. As well as new eco-friendly technologies, there has been deindustrialisation and demographic collapse. Between them, these three have produced a drop in emissions much more substantial than climate change-related austerity could generate.

A modest proposal

There’s scope for still more positive action—if the Bulgarian government has the guts to insist on it. This, in fact, is rather topical. Just now, Bulgaria’s caretaker government is busy redrafting the National Recovery and Resilience Plan (NRRP). And, with parliamentary elections little more than a fortnight away, NRRP promises to be hot topic of debate.

Now, as far as energy is concerned, a key issue must be the Maritza East (Maritsa Iztok) Complex, with its three giant lignite-fired thermal power plants (TPPs). These, let’s remind ourselves, are the anchor of the stability and independence of Bulgaria’s national energy system. They represent a big chunk of the country’s baseload capacity. If we didn’t have them, we’d be looking at massive imports of electricity, which would make Bulgaria vulnerable to upswings in the prices of key energy commodities—power, oil and gas. And that would be especially scary because upswings seem likely to be the norm: price trends are very unfavourable at present and likely to stay so.

So policies that involve premature closure of coal-fired capacity would seem to be a very bad idea—in Bulgaria and elsewhere. The G7 framework that emerged in Cornwall recognised this, even being willing, for the moment, to countenance coal without CCS, but certainly seeing fossil-based technology with CCS as deserving equal treatment in assessment of decarbonisation alternatives.

Nearer to home, however, things don’t look so hopeful. So far, Brussels has ignored standard procedures for reconciliation between climate goals and national energy security essentials. Instead of overseeing compliance with emission-reduction targets, it is proceeding by diktat. Diktats on what those targets should be. And diktats on the choice of technology. Which suggests that somebody has been lobbying very effectively.

As to the Bulgarian government’s reaction has been a blend of surrender and timidity. Which is at least consistent: the attitude of successive governments to the existential problems of the Maritza EastTPPs has, at best, been one of benign neglect (an interesting contrast, incidentally, to the prompt attention received recently by Ahmed Dogan’s Varna TPP!).

This must stop—now!

When Bulgaria presents its NRRP, the draft should be an assertive one. And, in the process of amendment and iteration that follows, Bulgaria should act assertively to defend it. What does this mean? Several things:

First, the draft should involve a proper risk analysis, leading to an optimum combination of costs and benefits. It should also emphasise a smooth transition. As we’ll see a little later, both of these considerations would, as a matter of fact, accommodate coal-fired power in combination with CCS.

Second, the draft should explicitly assert that this is an acceptable combination. Put bluntly: if it’s good enough for the G7, why isn’t it good enough for us?

Third, the draft should proceed on—and assert—the principle, noted above, that total national emission balances are the important thing, the pivot on which planning should turn.

Fourth, it should also uphold the principle that Brussels should stick to monitoring compliance with emission targets and leave the mix of technology used to individual countries and individual polluters. And, moreover, that Brussels should not engage in preference or subsidy beyond what is normal for start-up businesses. Non-discrimination between types of energy is, after all, at the heart of EU climate policy: that should be so in practice, not just in theory.

Fifth, the NRRP draft should be quite forthright and realistic about what demand for compensation is presented to Brussels. Risks and EU measures could, between them, have quite an impact and this needs to be recognised and compensated. For instance, the asset value of coal-fired generation in Bulgaria tops 5 billion leva, but this is eroded if the EUA (which represent the right to emit one tonne of CO2) gets more expensive. Again, if new investments in gas-fired generation or new renewables are mandatory EU policy, Brussels must pay in order to compensate end users for the carbon-neutral price surcharge.

Sixth, there should be a demand for more transparency about where proceeds from EUAs go and how they are spent—because there’s precious little of it now.

Seventh, there should be an unambiguous insistence that energy security is a national prerogative and that the NRRP has been written with this in mind. Let’s face it: if the Bulgarian government doesn’t defend its citizens no-one else will. The EU has seen all manner of erosion of national prerogatives when it comes to market integration, liberalisation and competition, cross border infrastructure, and so on. But, when push comes to shove, the EU has no prime responsibility to secure affordable and sustainable energy to member-states’ citizens. So NRRP must be based on how the Bulgarian government assesses the prospect of energy poverty—on just how much pain it thinks its citizens can or should take.

Eighth and finally, Bulgaria should be prepared to get litigious if need be. If Brussels doesn’t like the NRRP draft, then the country should take legal action, citing fundamental principles, to protect its citizens and their energy security.

CCS: the way forward

But the main thing to remember is that, for the moment, we need coal and we need CCS. Although there are many enlightened options for transition to decarbonised energy, including natural gas, there are none that can exclude coal in the short or even the medium term. The speed of transition will depend on the prices of natural gas and EUAs. If they spin out of control and coal mines are shut and coal-generating blocks decommissioned, then we can forget about any semblance of smooth transition to the carbon-neutral world.

Regarding EUAs, things are unpredictable and their prices could soar well above forecast levels. That, in itself, would strengthen the business case for coal-to-gas conversion. But there’s the gas side of the equation to consider as well.

The critical assumption in planning new gas-fired power generation capacities is that gas prices will remain predictable within the current price range. Which seems unlikely. Not only has the unthinkable just happened, with summer gas prices higher than winter ones. There’s also actually good reason for this, in the form of barriers to oil and gas exploration and production and the usual geopolitical gas power play by Gazprom trying to blackmail Europeans to accept the Nord Stream-2 as an indispensable trade off in return for cheaper gas. To this extent, the role of natural gas as a “bridge fuel” would appear to be compromised.

One consequence of this is that, from now on, it would make excellent sense to encourage Bulgaria’s energy companies to invest in E&P in the Black Sea and elsewhere to hedge against price volatility. And another is that CCS needs to be taken seriously. Bulgaria won’t be able to do without coal any time soon—and CCS is the only way to reconcile carbon-emission targets and energy security

Obviously, CCS technologies and national emission accounting systems, on their own, won’t solve every problem. But they are essential in the mix of options available to us if we are to manage emission balances without compromising growth and welfare.

We’ve had our dream-time about how to deal with climate change. It’s now time to get practical. To adopt a holistic approach. To engage in pro-active emissions management. Time to get real. And to get on with it!

Ilian Vassilev

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