Failure to adopt pollution bill puts country at risk of fines of at least EUR 300 million - Melnis

RIGA - Latvia, being in the European Union (EU), must not fail to transpose EU directives, and if it does not adopt amendments to the law On Pollution, the country already faces a fine of at least EUR 300 million, Climate and Energy Minister Kaspars Melnis (Greens/Farmers) told LETA.

He explained that three penalty procedures have been launched against Latvia. In addition, Latvia should already be facing fines for not adopting the bill On Pollution, as the deadline for adoption has been missed.

"The amount of fines calculated at the moment is around EUR 300 million - this is both the fine for not adopting the legislation and the penalty for each day delayed. Even if we pay the fine, the question is where will we get the money for it and how will we get it out of the budget?" said Melnis, explaining that paying the fine does not change the fact that the directives will have to be transposed and that until they are transposed, Latvia will continue to pay the fines.

Melnis also stressed that the European Commission (EC) has said that if Latvia does not transpose these directives, it can stop thinking about the Social Climate Fund, because it will not get it.

With the Social Climate Fund, Latvia intends to provide on-demand transport in the regions, purchase battery-powered trains (BEMUs), provide citizens with a program to insulate private houses, and set up a program to insulate apartment blocks, specifically helping low-income groups. Melnis stressed that by refusing to fund the Social Climate Fund, politicians are saying that Latvia does not need all this.

"If we do not need all this, the politicians who are against the Pollution Law are saying it openly - we do not need these projects and we will pay the EUR 300 million that we will take from the state budget," said Melnis.

He explained that the Pollution Law has already twice failed to pass in parliament due to a lack of quorum.

"The quorum cannot be jerked around indefinitely, a decision has to be taken either for or against," the minister said, explaining that the rejection of the bill automatically starts the process of penal sanctions. However, if the bill is passed, there are two other bills - the Transport Energy Law and the Economic Sustainability Law - for which Latvia has long been accountable to the EU because their adoption deadlines are three years behind schedule.

Asked whether there was an option not to transpose the Pollution Law at all, Melnis said that there was such an option, but then the question was whether Latvia was leaving the EU. "Being in the EU, we have no option not to transpose them, pay the fine and that is it. We have made commitments and as politicians we have to fulfil them," the minister said.

Asked if there was any hope that the bill would be approved by the Saeima on Thursday, October 9, Melnis said that there was always hope. "We are also looking at what is happening with the coalition, what is happening with the quorum, we are working on it, we are thinking about it," the minister said, adding that at some point politicians should start thinking about the country as a whole, not just about the next elections.

The Climate and Energy Ministry said that the amendments are intended to transpose the requirements of an EU directive on changes to the Emissions Trading System (ETS).

Several sectors, such as shipping, already face difficulties in meeting the requirements for the transfer of emission allowances, as Latvia has not yet developed the necessary national legislation.

Latvia is the administering country for 19 shipping companies, including foreign companies, which had to fulfil their obligations by September 30 this year, i.e. surrender allowances for emissions from the previous year. Several companies have already started to comply with the EU requirements on a voluntary basis, but without the practical details being spelled out in the national regulation, which risks that the details of compliance may be misunderstood. Some companies have not started to comply because Latvia has not established national procedures for compliance.

The ETS principle requires companies to surrender one emission quota for each ton of carbon dioxide (CO2) emitted. Free allowances significantly reduce companies' costs for fossil energy and help to avoid passing the burden on to consumers - directly affecting, for example, heating tariffs.

While there are delays in the national transposition of the EU Directive, the Latvian ETS operators - district heating operators - are at risk of not receiving additional free allowances to implement their climate neutrality plans. In Latvia, 11 ETS heating companies have submitted these plans.

Foreign Investors’ Council in Latvia (FICIL) calls the Latvian government and the Parliament to act upon thorough assessment of consequences in case of non-adoption of the three draft laws - the Economic Sustainability Law, amendments to the Pollution Law, and the Transport Energy Law. Currently 3 infringement procedures have already been initiated against Latvia for failure to implement EU directives, and that is why urgency status is assigned to adoption of ESL and amendments to the Law on Pollution, FICIL told LETA.

First, the European Union funds allocated to Latvia until 2030, amounting to EUR 6.9 billion, might be frozen. Consequently, Latvia could lose or fail to attract private investments of EUR 2-4 billion during this period. Reducing state budget expenditures is not in Latvia’s interest unless it is accompanied by purposeful economic development. A growing economy is a critical precondition for people choosing to live and work in Latvia, start families, and keep their culture and national identity alive.

Second, without updated national regulation for the emission trading systems (ETS1 and ETS2), district heating companies will be forced to purchase emission quotas already during the upcoming heating season, thereby potentially increasing heating tariffs. Airline ticket prices are also likely to rise, and major financial claims could be raised against Latvian ports for covering losses, as airlines will not be able to receive additional free quotas, and international shipping companies will not be able to exchange them. Therefore, aviation companies and ports of Latvia are likely to become less competitive not only within Baltics, but also in the European Union.

Third, approximately EUR 460 million in the European Union funds intended to support socially vulnerable groups might be lost. The state budget does not have an equivalent or larger amount available to compensate residents for the sharp rise in heating costs or to at least partially offset the growing cost of living. While the sharp increase in the cost of living may trigger a repeated wave of emigration, which Latvia cannot afford with its shrinking number of residents and lack of workforce.

In view of this, FICIL urges the government and the parliament to act only upon thorough assessment of short- and long-term negative consequences to be caused by the (non)adoption of these draft laws: impact on economic development, domestic and foreign investments, demography, amounts of payable state aid and similar aspects. Such approach would demonstrate adherence to consistent policymaking and to the good governance principles.

FICIL recognizes that the draft laws raise discussions and differing opinions. However, in view of FICIL, non-adoption of these draft laws might have a high cost, simultaneously jeopardizing the ability to invest in the national defense. By adopting these laws Latvia does not undertake any new obligations related to already undertaken climate goals. While in fulfilling obligations to implement the directives does not exempt from their fulfilment, meaning that they will have to be transposed irrespective of penalties. Therefore, foreign investors call on the government and the parliament to take urgent and decisive action. The decision lies in their hands - one that will determine whether Latvia will face significant European Union sanctions.