Strengthening citizens’ participation in the EU’s energy transformation – a toolkit

Europe’s transition to renewable energy supplies and efficient energy consumption is gaining momentum, not only as a result of the European Green Deal, but also in response to the fossil fuel price crisis. EU rules already provide some opportunities for citizens to have more direct access to affordable renewable energy, as well as making it easier to save energy through, for example, the renovation of buildings. In the new Knowledge Community, the Heinrich-Böll-Stiftung European Union and the Green European Foundation (GEF) are bringing together a wide range of experts from the EU institutions, local governments, industry, consumer organizations and think tanks to look at these possibilities. The aim is to examine specific tools and identify their current potential as well as remaining gaps that need to be filled. Analysis by Taube Van Melkebeke and Jörg Mühlenhoff

Green and progressive voices rightly present renewable energy as the cleanest and cheapest source of energy, which means benefits for both the environment and the economy. However, households and businesses continue to face sky-high energy bills despite the rapidly increasing share of cheaper and cheaper renewable energy sources in EU energy consumption. Energy savings and efficiency measures are perhaps even more obvious quick wins. Reducing consumption simply reduces costs while reducing the ecological and material footprint. However, here too there is still a lot of untapped potential. In reality, not all households and businesses can afford the sometimes high upfront costs to reduce energy consumption.

Research shows that these contradictions are beginning to undermine the high social acceptance of the energy transition among EU citizens.

Let’s not confuse the disease with the cure.

With the EU election campaign approaching, far-right and populist parties are already planning their opposition to the European energy transformation. They present this as the source of the cost of living crisis. In concert with several national governments, they are calling for a halt, slowdown or even halt to the transition to more efficient and renewable energy sources.

Nothing could be more short-sighted. A little reminder: it was the climate crisis combined with the EU’s dependence on fossil fuel imports that caused price increases in 2021. After extreme droughts across the continent, hydroelectric plants had to reduce power. Electricity production at nuclear power plants has also dropped significantly due to lack of cooling water. At the same time, Russia was strengthening its supplies of fossil fuels. After Gazprom failed to fill its fossil gas storage facilities, fossil gas prices rose sharply. Prices exploded again after the Russian invasion of Ukraine. Emergency measures taken by EU Member States have mitigated the explosion in fossil fuel prices, leading to a record high level of fossil fuel subsidies in 2022 of €123 billion, representing a huge budgetary cost to the EU and its Member States.

It is clear that the EU can no longer afford fossil fuels, both from an environmental and economic perspective. Instead of falling deeper into the stalemate on fossil fuels, policymakers should now make full use of new EU legislation in response.

Brand new EU policy initiatives are already initiating new ways of engaging citizens in the energy transition. The structure of the EU electricity market introduces a number of new laws and rules, the revised Renewable Energy Directive (RED) and the Energy Performance of Buildings Directive (EPBD), to accelerate the energy transition. They represent opportunities for the social dimension of Europe’s energy transition, as they provide the basis for tools that can reconcile affordable energy demand, citizen well-being and climate protection. After the European elections, it will be up to the EU institutions and Member State governments, on the one hand, to ensure the coherent implementation of these legislative initiatives so that citizens can better benefit from green transition policies, and, on the other hand, to close remaining policy gaps.

In this context, the Green Knowledge Community of the European Foundation and the Heinrich-Böll-Stiftung EU will evaluate five tools that are among the most promising options for quickly bringing clean and affordable energy to more citizens. We describe their potential and the most important challenges for the next term.

1. Fair and green retail electricity tariffs

There is general agreement among EU policymakers and market analysts that accelerating the deployment of photovoltaic and wind capacity has an impact on lower prices on wholesale electricity markets. However, this macroeconomic effect does not necessarily spill over to households. The way in which different retail electricity tariffs have been designed has widened inequality, pushing millions of people into fuel poverty. The right price signals from retail tariffs can encourage consumers to shift their energy consumption to times when cheap renewable energy is available. Rising block tariffs can combine social protection with market price signals. They are a tool that combines universal, low-cost basic supplies with increasing or more dynamic prices beyond the limited number of kilowatt-hours of basic supplies. This particularly rewards households with low incomes and low energy consumption. The key challenge for this tool is balancing price stability with exposure to volatility. In addition, suppliers now have the opportunity to include low-cost electricity from renewable sources in their offers, using power purchase agreements (PPAs) and/or contracts for difference (CfD). This could mitigate sudden price shocks to the benefit of customers.

2. Sharing energy with those who cannot invest on their own

Many citizens cannot or do not want to invest in their own renewable energy installations. Energy sharing is a new tool that allows you to remotely use renewable energy for your own use without becoming its owner. Their neighbors, local energy communities, municipalities or small businesses can donate surplus renewable energy to those who cannot or do not want to invest. Those who run their own installations, such as solar panels, can in return potentially receive higher remuneration for excess solar energy than from wholesale markets, while those who engage in a power-sharing system will still pay less compared to average retail prices . Social housing owners and companies, together with local administrations, are well placed to ensure social inclusion for vulnerable and underrepresented consumer groups. However, it is not yet clear how to support flexibility and fairly distribute overall system costs, e.g. network costs.

3. Facilitating access to renewable and renewable heat

Renovating buildings and switching to renewable heating and cooling pays off – provided the homeowner can afford the huge upfront investment. The new EU legislation provides a range of innovative tools combining public support and market mechanisms. When combined with green mortgage portfolio standards, green bonds or guarantee funds, private offerings such as heat as a service and pay-on-bill programs can leverage the required financing for renovation activities while remaining cost-neutral in terms of a tenant’s monthly rent. Member States also need to establish one-stop shops to simplify planning, advice and financing. Ideally, these tools can then facilitate access to renewable heating systems for people who do not have sufficient equity capital. There is still a need to adapt the carrot and stick approach. Starting with new EU rules, best practices on combining obligations (e.g. minimum energy performance standards) and targeted social protections need to be disseminated. As more and more households choose to use heat pumps or connect to district heating networks, specific rights and obligations deserve to be critically assessed to ensure social acceptance and affordability.

4. Turn local authorities into energy transition managers

As the energy transition involves a shift to decentralized local renewable energy sources, local authorities also receive more legal responsibilities and practical tasks. Strong municipalities play a key role in providing plans, permits and advice to ensure investment security. A well-functioning, competent local authority acting as a proactive energy transition manager is a key tool to ensure citizens have access to renewable energy sources and energy savings. Local authorities are now more responsible for co-planning energy and heating infrastructure, with a view to positive energy districts. They must also facilitate energy communities so that their citizens can take ownership of the local energy transition. However, the growing role of such a local energy transition manager also requires sufficient funding and local staff. EU institutions have launched a number of financial tools to increase the effectiveness of local authorities in the energy transformation, although to a limited extent for now. European fiscal and cohesion policy can be adapted to provide more tailored and stable financing, so that all local authorities can actually become an effective tool for increasing their share in the EU’s energy transition.

5. Mechanisms for managing a just and fair transition

The EU’s Just Transition Policy Framework, characterized by the slogan ‘leaving no one behind’, is – although insufficient in scope, depth and scale – a significant milestone for social inclusion and participation in the EU’s energy transition. It is built around three key mechanisms. First, it includes a Just Transition Mechanism, addressing the social and economic impacts of climate change mitigation and focusing on the regions, industries and workers that will face the greatest challenges. Secondly, the Social Climate Fund is intended to compensate vulnerable energy and transport users for the costs that will result from the new emission trading system for buildings and transport (ETS 2). Third, it includes the June 2022 Council Recommendation, which aims to urge member states to “ensure a just transition towards climate neutrality”. In addition, other existing EU governance tools can be used to enable a just and fair transition, including cohesion funds, the Recovery and Resilience Facility and the Modernization Fund. However, all these instruments still exemplify a compensatory logic that constitutes an obstacle to a more holistic – and therefore fully inclusive – approach. Governance can be strengthened by connecting governance areas, better and more transparent data, expanded social impact measurement and long-term planning. For the 2024-2029 mandate, it will be crucial to truly implement a systemic, whole-of-government approach to an inclusive, just and equitable transition.

Until autumn 2024, the Knowledge Community will develop together five short political briefs. Each brief will address the potential of each tool for enhanced, more inclusive and equitable participation in the EU’s energy transition. In addition to discussing the legal framework and distribution issues, as well as the national dimension of coherent implementation of EU legislation, the briefings will provide recommendations to EU policymakers on how to improve each tool.