What the energy crisis means for Europe’s green ambitions

LONDON — The European Union could struggle to advance its green agenda as gas prices soar across the bloc, according to experts who warn against slowing down investment into the sector.

The European Commission, the executive arm of the EU, has vowed to become carbon neutral by 2050, presenting a concrete plan to reduce greenhouse gas emissions by at least 55% from 1990 levels by the end of this decade.

However, these ambitions could be hit as a natural gas shortage on the continent drives prices higher. The front-month gas price at the Dutch TTF hub, a European benchmark, has risen more than 250% since the start of the year. It traded at about 74 euros ($87) a megawatt-hour on Tuesday — just shy of its record high of 79 euros it hit last week.

The recent spike is already having a tangible impact. Spain, for instance, has announced emergency measures to limit the profits that energy companies can make from gas alternatives, including renewables. The government is also hoping to cap what consumers are paying for their electricity.

“Soaring energy prices have hit economies across Europe, and if Madrid’s actions are imitated elsewhere as governments prioritize cheap energy over the green transition, the EU’s credibility in advancing global climate action could take a hit,” Henning Gloystein, director of energy at the consultancy firm Eurasia Group, said in a note Friday.

Spain is not the only country to cap energy price increases, with France and Greece making similar moves. But the plan in Spain has been the subject of some criticism.

Iberdrola, a Spanish energy firm with a focus on renewables, said the move “would undermine investor confidence in the country” at a time when the nation needs private money to achieve its climate ambitions.

“The risk to climate policymaking lies perhaps mostly in a loss of credibility ahead of the global COP26 climate talks in Glasgow later this year,” Gloystein told CNBC via email.

“If wealthy countries in the EU are seen subsidizing energy for households that is in part supplied by fossil fuels, then the EU can hardly tell poorer countries to stop subsidizing household fuel consumption supplied by fossil fuels,” Gloystein added.

Meanwhile, Jacob Kirkegaard, senior fellow at the German Marshall Fund of the United States think tank, said he is not overly worried at this point, but that the ongoing energy crisis “makes it even more important that the Spanish government finds other sources of financing.”

“You can’t stop financing windmills for people’s bills,” he said, adding that countries should not ease their investments in greener energies.

There is a wider problem,…