Warsaw, 26 July 2022 

ZPP’s commentary on desirable joint actions of European countries related to the energy threat

The war in Ukraine has formed an entirely new geopolitical situation, and therefore the primary task of all European decision-makers is to ensure sustainable energy independence for the countries of the Old Continent, based on the assumption of a temporary inability to import energy resources.

Further complications of the international situation should be taken into account, including, for example, provoking further conflicts that prevent or impede the import of energy resources, in an unpredictable time frame. Today, a war in any part of the world involving a NATO member will be a global event with consequences that are difficult to foresee.

Having regard to the above, the energy, transport and storage systems of European countries should also take into account such a crisis situation. We should have a precise plan to enable the economies of individual European countries to quickly switch to operation under conditions of resource independence, which, in turn, would probably involve temporary restrictions on the free consumption of energy resources.

In view of the above, we believe that a body should be established that would create solutions related exclusively to ensuring energy and resource security, common for all Member States of the European Union.

This body should prepare a programme to ensure total energy independence of EU countries, including from imports of energy resources. This document should consist of, inter alia:

1. Balance of existing resources, including but not limited to oil, gas, coal, biomass, renewables, nuclear, etc.
2. Balance of potential resources – cots of exploration, prospecting and extraction of conventional sources; potential availability dates of conventional and other sources (RES, nuclear).
3. Programme for the development of individual energy sources in Europe, spread over a timeline.
4. European programme for the development of transmission networks, national programmes for the development of high, medium and low voltage networks.
5. Distribution of tasks related to ensuring total energy independence between individual European countries.
6. Financing system for the programme of European energy independence.
7. System of military protection of energy sources and transmission lines of European countries.

The development of such a programme and its systematic introduction into the economic cycle of the EU, together with an active programme of joint purchases of resources from non-European countries, would not only allow the optimisation of prices but also ensure the stability of supply.

All activities related to the creation of a common energy market should be accelerated – for example, establishing a fund for the modernisation of transmission networks and the establishment of cross-border interconnections.

The scenario described above should be a programme axis for the development of a new European energy security system.

The basis for the energy security of a State is the proper development of energy networks. Nowadays, Poland has limited cross-border transmission capacity, and this is a key element of common European energy policy. In the coming years, Polish exporters to European markets may also face the need to purchase green energy, which, in turn, would require Poland to join the European Guarantee of Origin scheme (AIB).

The modernisation and development of low and medium voltage networks will determine the form of development of distributed energy, i.e. the foundation of the contemporary energy security of each country.

The European Commission has recently presented another report on the implementation of the Energy Union project that proposed, among other things, new targets for cross-border interconnections between EU countries.

So far, the country that is the furthest from achieving the targets set by the EC is Poland which has the least developed infrastructure in this respect. In presenting the report on the implementation status of the Energy Union, the representatives of the Brussels administration stressed the need to develop cross-border interconnections between individual EU countries, setting a target of at least 15% share of cross-border interconnections in the energy systems of individual EU countries.

The Commission plans to promote strengthening energy links between individual EU countries by financially supporting the cross-border interconnections which were compiled in a list of so-called Projects of Common Interest (PCS). It is estimated that the share of cross-border interconnections in the Polish electricity system is only 4%. This is the lowest level in the entire European Union. 

Only intensive development of cross-border interconnections can guarantee our participation in the pan-European security system. Having a fully liquid energy and gas market in Europe would naturally also result in the harmonisation of the prices of these utilities across the Community. For consumers, the current energy crisis entails periodic intense increases in energy and gas prices; however, in the long term, Poland’s presence in the common market definitely brings more benefits for our country than any variant of energy isolation.

See: 26.07.2022 ZPP’s commentary on desirable joint actions of European countries related to the energy threat

Warsaw, 11 July 2022

ZPP’s commentary on the conclusions reached at the Lugano conference

On 4-5 July 2022, an international conference on the reconstruction of Ukraine was held in Lugano, Switzerland. More than 40 countries and international organisations such as the European Investment Bank and the Organisation for Economic Co-operation and Development (OECD) participated. In total, almost 1,000 delegates attended the conference. Although the war instigated by the Russian Federation is still ongoing, and the timing of the end of the fighting and its outcome is currently impossible to predict, arrangements are already being made as to how Western states can participate in the reconstruction of the state of our eastern neighbours.

At the conference, the international community condemned Russian aggression against Ukraine and assured of its full support for the country’s independence and sovereignty. Seven guiding principles were also established to address the partnership between Western countries, economic cooperation and investment in the reconstruction of the country, and the internal reforms that Ukraine must carry out in the coming years. These principles include:

1. Partnership

The reconstruction process is led by Ukraine and is carried out in cooperation with its international partners. Reconstruction efforts must be based on a solid and continuous process of needs assessment, agreed priorities, joint planning for results, accountability for financial flows and effective coordination.

1. Focus on reforms

The reconstruction process must contribute to accelerating, deepening, expanding and ultimately realising Ukraine’s reform efforts along with perseverance in following the path of European development.

1. Transparency, accountability and the rule of law

The reconstruction process must be transparent and credible to the Ukrainian people. The rule of law must be systematically strengthened and corruption eliminated. All reconstruction funds must be spent fairly and transparently.

1. Democratic participation by the public

The reconstruction process must be a whole-of-society effort, rooted in the democratic participation of the Ukrainian population, including returnees from abroad, taking into account local authorities and effective decentralisation.

1. Engagement of multiple actors

The reconstruction process must facilitate cooperation between national and international actors, including those from the private sector, civil society, academia and local authorities.

1. Gender equality and social inclusion

The reconstruction process must be inclusive and ensure gender equality and respect for human rights, including economic, social and cultural rights. Reconstruction must benefit everyone, and no part of society should be left out. Social inequality must be reduced.

1. Sustainable development

Ukraine’s reconstruction process must be sustainable, in line with the 2030 Agenda for Sustainable Development and the Paris Agreement, integrating the social, economic and environmental dimensions, including the green transition.

In addition to setting out the above seven principles for cooperation in the reconstruction of Ukraine, the Lugano Conference also agreed on the areas to be entrusted to individual countries for reconstruction. According to the Ukrainian proposal, Poland, together with Italy, would undertake the reconstruction of Donbass. For Polish companies, this would be an opportunity to take part in a very large venture, as the Donbas is one of the regions where the most damage has been done, while at the same time it is an extremely important area economically due to its significant amounts of strategic resources, including coal, iron and so-called “rare earth elements”. The presence of Polish companies in the region would mean expansion into a new market and opportunities for multi-million dollar contracts. However, it is important to highlight a very important issue. The Donbas is one of the main areas of interest for the Russian Federation. The internationally unrecognised (except for Russia) People’s Republics of Donetsk and Lugansk operate in the area. In addition, the current state of hostilities in Ukraine indicates that almost the entire Donbass area is controlled by the Russian Federation. Given the uncertainty that the war brings, it may not be possible in practice for Poland to take part in the reconstruction project in this part of the country, and this may mean that the Lugano provisions will have to be revised. It should also be stressed that the proposal presented in Lugano contradicts media information and communications from Polish government representatives regarding the Polish role in the reconstruction of Ukraine. In fact, worthy of note is the fact that information so far has indicated Poland’s participation in the reconstruction of Kharkiv, whereas the Ukrainian proposal indicates entrusting this task to the United States and Turkey.

It is also worth mentioning that a large group of Ukrainian entrepreneurs representing almost every sector of the economy were present in Lugano. Participants on numerous panels highlighted the strengths that characterise the Ukrainian economy, such as one of Europe’s most modern banking systems, the high computerisation of public administration (including the existence of an equivalent of the Polish mObywatel system), a dynamic IT sector that is active even during wartime, and finally Europe’s largest agricultural production sector. Ukraine also has a significant pool of well-qualified workers ready to take up employment at any time. This is emphasised by Ukrainian business owners pointing out that the huge internal migration from the areas occupied by Russian troops has resulted in tens of thousands of people in urgent need of work in Ukraine.

Ukrainian entrepreneurs also identified the most relevant issues regarding Ukraine’s reconstruction process:

• introducing a zero-tolerance policy for any signs of corruption;
• ensuring that the competition conditions for the award of contracts related to the reconstruction of the country are completely transparent and fully fair;
• ensuring that the conditions for investment capital inflows from abroad are as simplified as possible.

At the same time, Ukrainian business representatives have indicated that, alongside political instability and the risk of the war dragging on for a long time, the biggest challenges at present are:

• Enormous financial needs regarding the process of rebuilding war damage and infrastructure. These needs significantly exceed the capacity of domestic business, resulting in the need for foreign funding, whether from individual countries, international institutions or private investors. This funding should receive systemic guarantees from the Ukrainian authorities and international actors.
• The massive scale of damage to the transport infrastructure, which has caused a crisis in the logistics industry and a breakdown in the smooth flow of goods and orders within the country and for export. Participants in the panel discussions highlighted that the average time for transporting goods has increased by more than three times. It is necessary to renew and expand the transport fleet of Ukrainian companies. At the same time, foreign entrepreneurs are reluctant to fulfil orders due to concerns about security, fuel availability and, above all, queues of many days at the borders.
• A crisis involving the mining and pollution of large areas of the country. It is estimated that ¼ of Ukraine’s land area is currently mined and covered with unexploded ordnance, with significant consequences for many years to come, not least of which is the complete exclusion of these areas from civilian use.

Many of the participants in the panel discussions are entrepreneurs who have experienced family and business tragedies, lost their assets and the means to run their businesses. They, as well as many of their employees, stood up with guns in defence of the country. Despite the horrific experience of war, however, they emphasise that Ukraine faces a historic opportunity to rebuild and modernise the state and join the Western world. They stressed the importance of international cooperation and pointed out the responsibility that Ukrainian entrepreneurs have in the reconstruction process.

See: 11.07.2022 ZPP’s commentary on the conclusions reached at the Lugano conference

Warsaw, 24 June 2022 

A ZPP commentary: The European taxonomy is staring into an abyss. It’s own power generation sources based on atom and gas are today as important for Europe as before the war, if not more important

In February this year, the European Commission announced that projects based on natural gas and nuclear energy could be considered compatible with the EU’s climate and environmental objectives once the relevant criteria are met. This compromise was intended to support the acceleration of Europe’s departure from electricity produced from coal. On 14 June, the European parliament’s combined committees – Committee on the Environment, Public Health and Food Safety (ENVI) and Committee on Industry, Research and Energy (ITRE) – raised objections to the treatment of these two fuels as sustainable within the framework of taxonomy of green finances. In the first week of July, the EP will resolve this issue, thereby prejudging the direction of the development of energy mix in Europe.

The objective of the EU taxonomy, and in fact the objective of the sustainability systematics, is primarily to support the cash flow toward sustainable activities. Without investors directing their capital toward greener technologies and business transformation, achieving climate neutrality by 2050 would become an unrealistic commitment. The EU sustainability systematics offers a uniform interpretation on the basis of which entrepreneurs can invest in projects and economic activities that generate positive impact on the climate and the environment. Taxonomy also imposes additional disclosure obligations on financial market participants in order to make it easier to assess projects against the criteria set.

While climate objectives are considered common to the EU as a whole, the energy mix of individual countries varies, and its shape can be decided by the Member States individually. The huge differences in the start point in terms of energy sources between countries have led to a compromise whereby gas and atom were to be used as transitional and stabilizing fuels for electrical power systems. In the opinion of the Union of Entrepreneurs and Employers (ZPP), this provision was a widely-expected and fair approach, giving the opportunity for countries with a carbon mix to lay a reasonable path to becoming decarbonized.

Moreover, as the European Commission has underlined in the justifications to the complementary delegated act on climate change systematics, including atom and gas in sources covered by EU support. Achieving climate neutrality by 2050 will require a large number of private investments. The EU sustainable systematics aims to target private investment toward the actions that are necessary to achieve climate neutrality. Taking into account scientific opinions and current technological developments, the Commission believes that private investment in natural gas and nuclear activities plays an important role. The delegated act supports the European economy in a fair energy transition. Strengthening private investment in transformation is key to meeting our energy targets. – claimed EC.

Projects in the nuclear field, which have been mentioned by the EU taxonomy, are:

• pre-commercial stages of advanced nuclear power generation technologies with minimum fuel cycle waste;
• the construction and safe operation of new nuclear power plants for the generation of electricity and/or heat, including for the production of hydrogen, using the best available technologies;
• production of nuclear electricity from an existing installation.

The eligibility of the identified activities as sustainable was subject to obtain a building permit by 2045. Investments should also meet the requirements of nuclear and environmental safety and, since 2025, accident-proof fuel is to be used in nuclear installations. The investor must also demonstrate that the nuclear waste will be disposed of without damaging the environment.

For gas projects, the document lists:

• the production of electricity from fossil gas fuels;
• high efficiency cogeneration of heat/cooling and fossil gas fuels;
• production of heat/cooling from fossil gas fuels in an efficient heating and cooling system.

In order to qualify as a climate change mitigation activity, the European Commission has indicated that the life cycle emission threshold should be below 100gCO2e/kWh and for installations for which construction permits were issued before 2030 – below 170gCO2e/kWh. Installations should also be designed and constructed in such a way as to use renewable and/or low-carbon gas fuels. The transition to full use of renewable and/or low-carbon gas fuels was expected to take place by 31 December 2035, so natural gas was to be considered as a bridge/transition fuel.

It was assumed that gas projects would be funded by the EU by 2030 and nuclear projects by 2045, with EU-supported gas installations having been able to use over time “green” hydrogen, produced with the support of renewable energy sources, thus gas fuel was clearly supported in this case on a conditional basis. Among the EU countries that opposed to such taxonomy, there were countries such as Germany, Austria, Luxembourg and Denmark; in turn France, Poland, the Czech Republic, Slovakia, Slovenia, Romania, Finland and Hungary have strongly supported this shape of the EU taxonomy. The dispute was also of a financial (apart from ideology) dimension, as it concerned about EUR 17.5 billion from EU funding programs that could have been acquired or lost by nuclear and gas projects.

Since the new taxonomic wording was to enter into force from 1 January 2023, a large proportion of private investors, whose involvement is important for the EU legislator in this case, have already been able to include gas and atom projects in investment strategies. It should be suspected that part of the investment decisions and actions have already been taken due to the severe time pressure from climate objectives. Infrastructural investments in energy are not only capital intensive but also spread over the years. They require a number of administrative permits, but also often partnership or consortia agreements. This kind of preparation in many companies started already in February this year and gained momentum in the face of Russia’s invasion of Ukraine, for the obvious need to become independent of Russian hydrocarbons as soon as possible.

It is therefore totally incomprehensible that the position of the ENVI and ITRE committees may block a significant number of private investment streams that have already been allocated. It is true that the direction indicated by the two parliamentary committees will be decided in the next weeks in the EU. The EU co-legislators, namely the European Parliament and the Council, had 4 months to examine the document and express their objection. In order for this objection to be binding, the Council would have to obtain a negation of the act by an enhanced qualified majority, which means that at least 72% of the Member States – at least 20 Member States – representing at least 65% of the EU population would have to object to the delegated act. In turn, the European Parliament may object, if a majority (i.e. 353) of Members vote against it in a plenary meeting. The vote on the leaving of gas and atom in the EU taxonomy is scheduled between 4 and 9 July.

Russian policy has forced Europe to redefine both energy security and the current needs for green transformation. Following the rather demanding Fit for 55 package, the REPowerEU program is presented, which envisages an even more intensive investment in RES development, energy efficiency improvements and the reduction of consumption of fossil fuels or energy in general. In the case of gas, there is already a clear decline in the consumption of this fuel in industry. Although this is primarily due to the high prices of this fuel which have been in existence since 2021, the war in Ukraine and Russia’s reduction in gas supply to the European market have exacerbated this. The side effect is, however, that the prospect of carbon leakage has extended considerably and the current demand for this raw material is breaking records, as a result of the huge number of carbon blocks that work in recent months in Europe. This phenomenon is very apparent among others in Germany, which is the most blatantly defending climate objectives and which also have nuclear power, and yet still trigger more coal blocks in recent times.

The EU taxonomy was to promote activities for which there are no yet alternative low-carbon solutions that are technologically and economically feasible, but support the transition to a climate-neutral economy or contribute to climate change mitigation. In this sense, these projects were to be considered compatible with EU objectives and indirectly supporting the implementation of low-carbon solutions.

In the opinion of the Union of Entrepreneurs and Employers, the rejection by the European Parliament of the sustainability systematics adopted by the European Commission on 2 February will have a negative impact on many energy transformation processes. Many investments in infrastructure that was intended to bridge the path to climate neutrality will be hampered and, in the absence of sufficient capacity, the least efficient carbon blocks will be integrated into the system. While we see a clear need to review and maintain European coal assets as long as it is necessary to guarantee energy and heat to EU citizens, such a role for conventional energy should only be stabilizing and, where we have the possibility to replace the exploited and inefficient installations with new powers that are slightly more sustainable, it is the direction where community or state resources should be channeled.

Private investors need a transparent policy in this respect. They cannot learn every few months about such important changes in EU priorities, such as the inclusion or exclusion of gas and atom from taxonomy. This leads to far-reaching confusion and increases the assessment of the risk of investments that may not be made as a result. As a result of this situation, already today, the demanding climate targets will become completely unrealistic and are only present on the paper of EU declarations; such a situation will in turn undermine the authority of the analyzes and findings at European level. This is a highly dangerous direction for the unity of Europe which, in the present geopolitical situation, needs mutual understanding, operational efficiency and good cooperation between administrations and the home business.

See more: 24.06.2022 A ZPP commentary: The european taxonomy is starting into an abyss. It’s own power generation sources based on atom ans gas are today as important for Eyropean as before the war, if not more important