Meeting on green transition with Latvian Ministries of Environment, Agriculture, Transport and Interior, Finance and Economy

19 November 2020, Brussels

Participants:

(COM/RECOVER) Maria Teresa Fabregas Fernandez, Eva Maria Szavuj and the country team in SG- RECOVER; (COM/ECFIN) Massimo Suardi, Maarten Masselink and the country team in ECFIN; (COM/MOVE) Erki Must; (COM/ENV) Inese Kausa; (COM/ REGIO) Jeroen Von Oel; (COM/AGRI) Jolanta Mikelsone; (COM/COMP) Pierre-Arnaud Proux; Tuija Hirvonen; Ania Foszczynski; (COM/CLIMA) Susanna Perko.

(MS/Latvian Ministry of Finance) Armands Eberhards, Deputy State Secretary for EU funds; Ints Dalderis, Advisor to the Minister; Boriss Kņigins, Deputy Director of EU Funds Strategy Department; Kristīne Ancāne, Deputy Director of EU Funds Strategy Department; Jānis Ozols, Ministry of Finance, senior expert; (MS/Ministry of Environment) Alda Ozola, Deputy State Secretary; Sandis Cakuls, Deputy State Secretary; (MS/ Ministry of Economy) Dzintars Kauliņš, Deputy State Secretary; Raimonds Aleksejenko, Deputy State Secretary; Einārs Cilinskis, senior expert; (MS/ Ministry of Transport) Ligita Austrupe, Deputy State Secretary; Andis Strods, Director of Investment Department; Indra Garā, Deputy Director of Investment Department; (MS/ Minsistry of Interior) Kitija Gruškevica, minister adviser; Ramona Innusa, Senior Expert, (MS/Ministry of Agriculture) Pārsla Rigonda Krieviņa, Deputy State Secretary.

Agenda:

1. Presentation of Latvian RRF priorities on green transition
2. Next steps

Executive summary

The Commission held a meeting with the Latvian authorities on the green transition topics. It was the third meeting with Latvia. Latvia presented projects for sustainable transport in Riga metro area, energy efficiency in buildings, biomethane production, flood risk prevention and others.

Overall, this meeting left an impression of lack of strategic approach: the initiatives were scattered, with varying degree of relevance for green transition. Key elements, such as support to renewable energy, tax incentives and green financing schemes were missing. Moreover, the measures lacked detail and did not contain enough reforms (if any). Much more detailed information will be needed to assess the different measures. The application of the “Do-not-significant-harm” principle has not yet been considered by the authorities and thus some of the projects might not be fully compatible. The impact of the measures has not been assessed and their efficiency clearly varies. Complementarity with other sources of funding (Cohesion Policy, EAFRD) will need to be carefully assessed as well.

As regards specific measures, the reform of the Riga transport area remains unclear in its content and overall aims. It will not be used for the financing of Rail Baltica. Whether the proposed support programme for biomethane is in line with the investment guidance on fossil fuels will also have to be closely assessed. Moreover, the support schemes for energy efficiency in buildings and business are not part of an overall consistent strategy and lack ambition. It would be important to ensure that the efficiency (in terms of CO2 reduction) of the investment is maximised and that financial support schemes rely on competitive attribution.

The Commission also signalled that the link between the RRF’s objectives and some other proposed investments (in flood protection, fire rescue centres and vehicles or forestry management) was tenuous at best. Latvia has already requested a further technical meeting on these projects.

Detailed summary

As an introduction, RECOVER considered that the presentation provided by Latvia remained very broad and that more detailed information (based on the template circulated by the Task Force) was needed to assess the different measures. ECFIN stressed that the plan required a more strategic vision and noted that some additional topics needed to be discussed (tax incentives, renewable energy).

1. 1. Topics included in the Latvian presentation

1. 1. 1. National Energy and Climate Plan

The Ministry of Environment noted that the recent resignation of its minister had slowed down the RRF preparation. The Ministry considered that reaching the GHG emission reduction target of -65% by 2030 (compared to 1990) would be a challenge notably for the non-ETS sector. Extra public intervention and funding would be needed. The NECP priority would be to reduce GHG in transport, and improve energy efficiency (reducing energy consumption and improve efficiency in the private and public buildings).

1. 1. 2. A reform of the Riga transport sector and transport

The Ministry of Transport proposed a reform of the Riga Metro Area Transport. This would imply a modal shift from cars to buses and railway to be achieved by renewing infrastructure and creating mobility hubs and synchronous transport solutions. This would require renewed busses fleet in Riga and its agglomeration and improving railway line service with more environmentally friendly rolling stock.

Latvia was also aware of the current institutional fragmentation of the network and had therefore created a Task Force chaired by the Ministry of Transport. A unified transport network would ultimately have to be created. The different institutions involved in the Task Force had already prepared projects for the reform: the ministry of Environment would now asses them by the end of first Q1 2021. Some of them could potentially be financed by RRF or the cohesion policy.

RECOVER stressed the need to define an overall strategy of the reform before making any assessment under the RRF. The draft RRP should also focus on the issue of institutional fragmentation. As regards biofuel and infrastructure in electric mobility more generally, Latvia did not plan any specific support for a specific type of energy. The government had imposed some requirements to include electric charging stations in private buildings but ultimately the choice would be left to the costumer. In any case, the private sector showed growing interest for electric mobility.

1. 1. 3. Rail Baltica

The Ministry of Transport explained that it would not seek RRF funds for sections from the Rail

Baltica network that were also part of the Riga Metro Area project (the related investments could not be classified as green). The Ministry rather considered financing with cohesion funds, Connecting Europe Facility (CEF) and other sources. As regards the possibility of including local rail traffic infrastructure in the RRF (DG MOVE), the Ministry of Environment explained that the main route of Rail Baltica would not be finished by mid-2026. Therefore, it could not envisage starting the local infrastructure projects and their funding before 2026.

1. 1. 4. An investment support programme for the production and use of biomethane in the transport sector and renewable energy

The Ministry of Economy explained that the programme would consist in i) investment subsidies for biomethane infrastructure and ii) grants for the private and public sector (for instance transport and operative CNG vehicles using biogas). In practice, this would largely benefit private actors such as existing biogas factories (using infrastructure to transport methane to biogas pipeline) or waste collecting vehicles. State aid limitations would be taken into account.

RECOVER stressed the fact that fossil fuel power generation was not supported under the RRF with some exceptions based on the case-by-case, provided the overall contribution to decarbonisation was ensured. Some exceptions related to bio-methane existed but more detail was needed in the draft RRP to reach an assessment. As regards investment in vehicles, they would also have to be in line with decarbonisation target for 2030 and 2050. RECOVER also noted that support to companies under the ETS sector could be problematic. However, Latvia suggested that beneficiaries would most likely not be under the ETS sector.

1. 1. 5. Investment in building renovation

The Ministry of Economics proposed to improve the energy efficiency of buildings. Adding up to the targets already announced under the NECP target, it aimed to renovate 350 multi-apartment buildings with RRF funds and reduce energy poverty below 7%. This effort would also be complemented by the MFF.

RECOVER agreed on the necessity of these measures which were in line with flagship initiatives but called for more ambitions to reach the 2030 targets and to ensure that the NECP target would be reached. RECOVER highlighted the need to have clear milestones and targets as well as a measure of the expected impact of investments. It also stressed the need to reduce the administrative burden linked to building renovation. Latvia explained that to simplify procurement and documentation, grants would be given at the end of the project. The new Riga Municipality would also be much more engaged in favour of building renovation and assist beneficiaries.

1. 1. 6. Financial support measures for energy efficiency in business

As regards energy efficiency in businesses, the measures consisted in financial instruments with grant elements and would also support company competitiveness; it would support smart energy systems. It targeted up to 800 companies.

ECFIN called for a more strategic approach on energy efficiency, going beyond a piecemeal plan focused on homeowners and businesses. The Ministry of Economics explained that the RRF covered only part of the strategy contained in the National Development Plan and that other instruments would be used in parallel. ECFIN also welcomed proposals to foster green financing as it was currently underdeveloped in Latvia. ECFIN also noted that financial support schemes could be used for homeowners (rather than using grants) as some projects had a positive net present value.

1. 1. 7. Disaster risk management measures (fire rescue centres and vehicles)

The Ministry of Interior explained how the different projects (including new vehicles for the fire rescue service) would contribute to climate mitigation.

ECFIN considered that the link with the RRF was not clear and called for not using the RRF just to fill in the gaps in the national budget. The contribution of the measures to climate adaptation should also be better explained. Investment in fossil fuel vehicle would be problematic for the RRF as it would not be in line with the 2030 targets.

1. 1. 8. Measures to reduce flood risks and better manage the biodiversity of forest land

As regards forestry management, the Ministry of Agriculture proposed to support forest management quality and forest extension.

ECFIN considered that the link with the RRF was not clear and should be strengthened. The measures seemed to be justified largely by the lack of past maintenance. As regards forestry, the need for funds to complement the CAP was not a sufficient justification. ECFIN also recalled that recurrent costs could not be covered by the RRF.

1. 2. Issues not covered by the Latvian presentation

9. Horizontal issues

RECOVER considered that the RRP should include a coherent strategy aligned with the objectives of the RRF. It recalled that all measures would have to respect the do-no-significant-harm: a draft checklist would be sent to Latvia shortly. The demarcation and complementarity of funds would also have explained in detail. As regards state aid, guidance was coming in particular on flagships.

10. Renewable energy and wind energy

The Ministry of Economy explained that wind energy was one of the main priorities under the NECP. There were no significant obstacles to onshore winds in Latvia despite a lack of incentives for municipalities to approve their projects. Latvia did therefore not foresee any public financing for onshore wind energy, including EU funds. The Ministry was also looking at wind energy in forest areas.

Latvia would rely on financing under the MFF to extend the centralised heating system. It would also continue its support to switching from gas to biomass. A representative of the Energy Department of the Ministry of Economics notably explained that it would like to encourage the use of biomass for heating in sparsely populated areas.

11. Other topics

ECFIN emphasised that access to finance for green projects should be extended. Tax incentives should also be considered to support the green transition. Latvia explained that tax measures were envisaged in National ECP. However, some proposals for next year budget on the taxation of old diesel cars had not made it through Parliament. Latvia also confirmed that it would not seek RRF financing for the synchronisation of the electric grid with the rest of Europe.

Points of horizontal interest to flag: