The European energy crisis: how are countries dealing with the gas shortage?
Given the increase in demand for air conditioning in summer and heating in winter as well as the decrease in energy supply due to EU sanctions against Russia, the largest energy exporter to the Europe, and to its retaliatory measures, European countries face a huge rise in energy prices. Faced with insecure electricity supplies, some countries have decided to reopen coal-fired power plants as a short-term recovery from Europe’s energy crisis, a move that experts say will slow the transition to net zero. of the EU.
The European energy crisis
At a special meeting of the European Council at the end of 2022, member states agreed to adopt the sixth set of sanctions against Russia, including a complete ban on the import of crude oil and petroleum products transported by sea in from Russia by the end of the year.
After banning coal and oil, some leaders, like Krisjanis Karins – the Latvian prime minister – have called for a new natural gas embargo, arguing that existing sanctions are nowhere near enough to punish Russia for its reckless invasion. from Ukraine. Most heads of state agree on the need to ban Russian gas but don’t expect to see it in the next round of sanctions realistically due to heavy reliance on Europe towards him.
Unlike oil, Russian natural gas is difficult to substitute, given that Russia is the largest exporter of natural gas to Europe as well as to the world. In 2021, this country alone exported around 240 billion cubic meters of natural gas in the world, 60 billion cubic meters more than the second largest exporter, the United States.
Although the latter has significantly increased its exports of liquefied natural gas (LNG) to Europe since the invasion, this is far from sufficient compared to the amount needed to end Europe’s dependence on of Russian natural gas. On the contrary, natural gas is more of a bargaining chip for the Putin administration.
At the end of June, the supply of natural gas via Nord Stream 1 – one of the main gas pipelines transporting gas from Russia to Europe – was 60% cut. While Russia defended the move citing technical issues, experts say the real intentions could have been to drive up fuel prices, a stark reminder to Europe that sanctions are a double-edged sword.
The EU’s consumer price index (CPI) – an instrument that measures inflation by calculating the average cost of a basket of goods and services – fell from 110.7 in January 2022 – a month before the invasion – to 117 in June 2022. While the European Central Bank’s quantitative easing which aimed to maintain liquidity during the Covid-19 pandemic also contributed to the sharp increase, it does not There is no doubt that the conflict in Ukraine, together with the severe sanctions imposed on Russia, have considerably aggravated inflation.
The paradox of globalization
The war revealed an underlying threat of globalization. This phenomenon maximizes production because each country can specialize in the production of products for which it has a comparative advantage. However, the economy is not all black and white.
First, globalization can only increase production if there are strong international institutions to ensure that trade is free and fair for both parties. Second, the law of comparative advantage assumes that production is the sole measure of well-being while neglecting moral values, security, and many other factors that together constitute it. Even though the old-school theory – which claims that economic development will lead to the flourishing of liberal values such as democracy – has been proven historically wrong during the Cold War, the West has not given up the idea of globalization, given the economic benefits that flow from it.
Yet movements like nationalism and protectionism are beginning to reappear after the Russian invasion of Ukraine. Indeed, politicians realize the dangers of trading freely with countries that do not share the same set of moral values. And this is especially true when it comes to energy trading, because the insecurity associated with energy prices inevitably causes the price of most other commodities to fluctuate.
What is the impact of the European energy crisis on the Net-Zero transition?
To reduce dependence on Russian fossil fuels, European countries such as Austria and Germany have decided to temporarily delay the Green Deal and reopen some closed coal-fired power plants. It was a difficult decision to make because the increased use of coal, the most polluting fossil fuel, obviously goes against the principles of The EU Green Deal, a series of new policies launched by the EU to meet its climate change targets of reducing emissions by 55% below 1990 levels by 2030, as well as the long-term objective of achieving net zero emissions by 2050. While these measures are an obvious knock on the green transition, the reopening of coal-fired power stations has in fact had the effect of lowering the prices of fossil fuels: at the beginning of July, the prices of West Texas IntermediateBrent Crude and Natural Gas have all fallen back to pre-war levels.
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The main problem is that no one can predict when the war will end and how Europe will manage its energy policies once the conflict is over. Thus, we cannot be sure how long these “temporary” measures will last. These uncertainties raise the question: can energy security be compatible with climate change mitigation initiatives?
Fortunately, we have examples of countries that have successfully integrated energy security and green initiatives. The invasion showed the success of France’s energy security policy that dates back to Charles De Gaulle – the first president of France’s fifth republic in the 1960s. 70% of the country’s energy comes from nuclear power, which explains why France’s consumer price index in June 2022 was “only” 114.6, well below the EU average. EU of 117. Although nuclear energy is not renewable, it does not emit greenhouse gases during its production. Just a few days ago, the European Commission labeled this type of energy as “green”. Under the newly approved taxonomy, the EU will recognize new nuclear power plants built up to 2030 as a transitional energy source as long as they are used to replace dirtier fossil fuels such as oil and coal .
Nuclear opponents point out, however, that France is not in a safe zone either in terms of energy supply because the uranium needed to power nuclear power plants is also imported from other countries. The reason France is safer than most countries is that the demand for uranium on the world market is limited. If other countries emulate France’s initiative to develop nuclear energy, France’s supply will be more vulnerable and the country will likely have to bear a higher cost. Yet many argue that no energy policy can guarantee complete security, because trade always comes with risks. The advantage is that the risk can be diluted by diversification in terms of buying channels and number of energy sources.
Many European countries certainly did not follow this seemingly obvious rule of trade. Germany, for example, imported more than 60% of natural gas from Russia before the war. In comparison, France fares much better in terms of energy security because it has several channels for purchasing uranium but fails to diversify its energy sources, which will be dangerous when the world demand for uranium will increase.
Long before the start of the conflict, there were already many signs pointing to the danger of continuing the partnership with Russia. A red flag was the annexation of Crimea in 2014 when Russia illegally occupied the peninsula during a wave of large-scale nationwide protests against former President Viktor Yanukovych’s rejection of the EU association agreement -Ukraine.
Is there a way out of Europe’s energy crisis?
In the long term, there is no doubt that renewable energy is the only way to keep energy prices affordable while facilitating the transition to net zero. Moreover, the production of renewable energy does not require massive imports. According to the World Economic Forum, renewable energy sources, including wind and solar, have also become the cheapest in 2020 thanks to commercialization, making them a much better alternative to any other energy source. available.
The idea of energy security is not necessarily the triumph of nationalism or protectionism. On the contrary, it is an opportunity for a healthier globalization that takes morality into account. Countries can always adopt a wider range of sanctions with lesser effects on their own citizens when a member breaks the rules. The deterrence of such sanctions will be greater and the world will likely be more peaceful. Massive investments in renewable energies, as noted by Ursula von Leyen, President of the European Commission, are the only way out of the European energy crisis and the best way to obtain green and low-cost energy with low risks.