CEE Challenge - Going Green | Erste Group Bank AG

CEE - 10 challenges for the new decade

No.2 Going Green

Less coal-fired energy production, better utilization of EU funds to smooth the transition, more renewables and faster transformation to low-emission vehicles in the EU is the way to go.

Once the turmoil caused by COVID-19 subsides, there will be a need for reflection and strategic decisions on how to move forward and be prepared for the next challenges to be faced. The vast majority of EU member countries opted to push the Green Deal, together with the Digitalization Initiative, as the core of the new Recovery Plan for Europe supported by the new 2021-27 Multiannual Financial Framework. Apart from Poland, CEE countries are on track to reduce greenhouse gas (GHG) emission targets1 by 2020. However; there is still a lot to do to meet 2030 targets. In a decade, the cut in greenhouse gas emissions should be 40% vs. the 1990 reference year, while the share of renewable energy should reach 32%.

CEE countries can further reduce their CO2 emissions and air pollution in this decade via:

substantial reduction of coal-fired energy production, especially in Poland, which produces 62% of all CEE coal-related emissions.
utilization of EU funds (the EC is mobilizing EUR 100bn in three pillars) and green financing to smooth the transition, get more involved in renewables and reduce energy intensity, support faster transformation to low-emission vehicles, ideally complemented by EU-wide scrapping and recycling initiatives on a large scale, as only less than 2% of cars from the overall vehicle fleet are being scrapped and recycled per year in the EU.

On path to meet Green House Gas emission targets…

Greenhouse gas emissions (particularly CO2 emissions) are global drivers of climate change. To avoid negative consequences, a reduction of GHG emissions is needed. CEE countries are on track to meet European targets, with one notable exception – Poland. While CO2 emissions per capita are in general lower in CEE compared to the EU average, CO2 intensity per unit of GDP is higher in all CEE countries. That means high CO2 emissions could be a bottleneck for countries with high growth aspirations (which demand more inputs) unless they change the energy mix or reduce energy intensity. On the other hand, the CO2 intensity suggests that Czechia and Poland in particular should have plenty of room to reduce the economy's carbon footprint.

… energy production mix has to change...

In most countries, the electricity, gas and steam supply sector is a major producer of emissions, followed by transportation. The share of coal-fired power plants in electricity generation remains pretty high in CEE, at 48%, compared with just around 20% for the EU average. The share of coal-fired power plants in electricity production ranges between 77% in Poland to a little less than 11% in Croatia. Excluding Serbia, there were 100 coal power plants in CEE countries, which produced a total amount of 173 Mt CO2 emissions.

Not surprisingly, the highest amount was recorded in Poland (107 Mt). With 44 facilities, it produced 61.8% of all CEE coal-related emissions The Czech Republic follows, at 23.7%. We can see that only two CEE countries produce 85.5% of the air pollution caused by coal plants. The other side of the coin is the much lower wind and solar capacity in CEE. These renewable sources provided little more than 12% of electricity in CEE, which compares with nearly 28% in the EU. CEE therefore has huge potential to catch up even with just the EU average.

… and move away from burning coal

While CO2 emissions cause global problems, there are a lot of locally present negative externalities related to coal-fired power plants. These plants were responsible for an estimated 6,841 premature deaths in 2016 in CEE (including Austria and Serbia). But the damage to health goes beyond the sheer death toll. Air pollution stemming from such plants increases the number of chronic illnesses (adult and childhood bronchitis), increases hospital admissions and translates into lost working days. Health costs stemming just from coal-fired power plants can be estimated in billions of euro per year. As a percentage of GDP, this ranged from 0.1-0.2% in Hungary to 1-2% in Romania, Poland, and Czechia.

Moreover, the running of coal-fired power plants is not economical, even though at first glance it can be considered a cheap source of energy that does not require new investment. The industry has been relying on heavy subsidies, not just direct (as state aid is regulated in the EU), but also many indirect, via loans, guarantees, long-term power purchase agreements, take or pay clauses, tax rebates, special pensions. On top of that, the producers and consumers of such energy have not been charged to compensate for the environmental and health damage the production of coal energy has been causing, which according to IMF estimates exceed the value added reported by the industry by a vast margin.

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