Experts predict that, regardless of the type, transport energy will become more expensive

Nozare.lv 01.11.2024

Transport energy will become increasingly expensive in the future, regardless of its type, experts said on Friday at the media event “Which fuel will be cheaper and how will we compensate for price increases?” However, experts noted that the European Commission’s Social Climate Fund will help offset the rise in fuel prices.

Armands Gūtmanis, Chairman of the Board of the “Sustainability Cluster Latvia” pointed out that currently fossil fuels are cheaper and renewable energy sources (RES) are less utilized, and that subsidies exist at present for both fossil fuels and RES.

In the future, however, fossil fuels will become more expensive, RES will see broader application, and mechanisms to compensate for price increases will also need to be more widely implemented.

Gūtmanis stated that the 2024 informational report on Latvia’s GHG emissions, their projections, and climate obligations shows that Latvia will not be able to achieve the 17% emissions reduction target—neither under the scenario with current measures nor under the scenario with additional measures.

At the same time, he noted that the non-fulfillment of annual targets begins in 2024, which may necessitate the use of flexibility mechanisms—purchasing emission quotas from other countries.

If Latvia fails to meet the Renewable Energy Directive (RED III) targets for GHG reduction in fuels, financial penalties will also apply. As examples, Gūtmanis mentioned the case when Spain was fined 12 million euros for failing to comply with the Urban Wastewater Treatment Directive in 17 cities, which affected water quality and public health. Similarly, the European Court of Justice (ECJ) imposed a 40 million euro fine on Italy for failing to manage waste effectively in the Campania region, violating the EU Waste Framework Directive.

Baiba Miltoviča, a representative of the Latvian Consumer Interests Protection Association, noted that consumers generally support the use of renewable energy sources (RES), but the key issue is whether residents can afford these resources.

She emphasized that batteries, hydrogen, biomethane, and biopropane could play a significant role in greening the transport system. At the same time, speaking about electrification, Miltoviča stated that a reliable charging system is crucial for the transition to electric transport, noting that “for any driver, the absence of a charging system will be the first argument against switching.”

Miltoviča said that to prevent increases in transport energy costs, the wider use of renewable resources must be cheaper than fossil fuels.

She also believes that the government should promote broader use of renewable resources, including those produced in Latvia, and invest in more affordable public transport.

Additionally, the government should strategically use funds from the European Social Climate Fund to compensate for price increases, making renewable resources cheaper than fossil fuels.

“This will ensure that the green transition proceeds fairly and will help consumers make more sustainable choices,” Miltoviča emphasized. She also stressed that energy is a fundamental element of society and should not be treated like other goods; energy access is a basic right for residents, which no one should be deprived of.

Miltoviča noted that the Latvian Consumer Interests Protection Association offers its participation in government working groups to help develop the Social Climate Fund program and define which groups should receive compensation for price increases.

She highlighted that over €600 million from the Social Climate Fund will be available in Latvia to support residents.

The association urges the government to start a public consultation on the groups that should receive compensation from the Social Climate Fund due to rising fuel costs, for example: families with low incomes, pensioners with low incomes, people with special needs, public transport users, as well as residents of rural or remote regions who rely on personal transport because public transport options are limited.

Andris Kužnieks, Head of the Policy Department at the European Commission Representation in Latvia, stated that EC representatives often talk about new proposals, but the Social Climate Fund has already been approved and included in regulations.

To ensure a fair and inclusive transition process, the European Union has established the Social Climate Fund, which will begin operations in 2026.

The fund is designed to help mitigate the impact of rising fuel and heating costs on vulnerable households, small businesses, and transport users who are at risk of energy and transport poverty.

Speaking about how this fund will operate, Kužnieks explained that a carbon price will be set for fossil fuels used in transport and heating, while companies selling fuel will be required to purchase quotas (based on the carbon price) for the emissions generated by their activities.

Revenue from the sale of these quotas will be credited to the Social Climate Fund, and EU member countries will be able to use the funding allocated to the fund to assist those who need it most.

The fund is expected to support the decarbonization of the transport sector, improvement of ecological and energy-efficiency indicators of buildings, addressing energy poverty, and providing assistance to vulnerable population groups.

It is also planned that each EU Member country must prepare a national Social Climate Plan with structural measures and investments to be achieved in the period 2026–2032. These plans must be submitted to the European Commission by June 2025.

The European Commission will evaluate the implementation of the plan and approve payments only if Member countries satisfactorily meet the set targets for plan execution. In Latvia, the responsible authority for preparing the plan is the Ministry of Climate and Energy (KEM).

Kužnieks noted that “the work initiated by the EU and Member countries on the implementation of the Green Deal will continue with full force in the coming years, as it is clear that retreating from climate change and geopolitical challenges is neither possible nor postponable.”

One of the central elements of the Green Deal is emissions trading, i.e., attaching a price to carbon. The new quota trading system, which will start operating by 2027, will provide significant support for achieving climate goals by directing investments toward decarbonization and further reducing emissions, Kužnieks said.

Aija Timofejeva, Director of the Energy Sustainability Department at the Ministry of Climate and Energy (KEM), stated at the event that the discussion is currently not only about fuel, but about transport energy, understood as any type of energy that can move transport forward.

She emphasized that from 2030, it will be mandatory for all EU Member countries to have a specified share of renewable energy in fuels, while Latvia currently ranks first with the lowest share of renewable energy in fuels. “According to the current plan, Latvia does not intend to wait until the 2030s, but the system could gradually be introduced as early as 2027, to start reducing quota payments already then,” explained Timofejeva, noting that for each percent of renewable blend added to diesel to ‘green’ it, quota payments can be avoided. “This is the discussion about what is cheaper: to blend other fuel types in, or to pay the quota. What we have calculated is that bio-blends are cheaper than fossil fuels,” emphasized Timofejeva.

Justs Dimants, lead researcher at the "Latvian Climate Neutrality Cluster 2050," highlighted that without countries support, fossil fuels are currently the most economical way to drive. Likewise, the current financial threshold for switching to electric vehicles is often too high.

“When considering the various climate and renewable energy targets that must be gradually achieved by 2030 and the associated costs, the most cost-effective scenarios need to be identified,” explained Dimants. He noted that some scenarios require aggressive subsidies, including for fuel production, infrastructure development, and vehicle purchase, thus demanding significant expenditure in these areas.

Other scenarios, however, do not require subsidies, and costs are shifted not to the budget but to the polluter, because they allow reliance on already existing infrastructure and vehicle fleets. Dimants emphasized that it is necessary to evaluate both the expected increase in energy product prices and the required level of subsidies. At the same time, Dimants concluded that failure to achieve greening targets will be paid for by the polluter—that is, the consumer—and by taxpayers. He also stressed that continued investment in transport greening is necessary, assessing the economic benefits across the full cycle in the future.