EU scrambles to find new energy sources to replace Russian gas, a fragility in Europe’s energy dependencies and plans has become apparent. Moreover, further challenges have hit the EU’s hopeful transition to green energy.
Russia has cut off almost 80 percent of its gas supplies to Europe, while the EU aims to scrap Russian fossil fuels by 2027. EU countries have therefore been in a race against time to find short-term alternatives without jeopardising their plan for a green energy transition.
Europe seeks to move towards net zero and achieve its optimistic green energy plan, to which the EU has allocated 300 million euros. The EU’s framework aims to achieve gas emissions reductions of 46 percent below 1990 levels by 2030, which would serve as a milestone in achieving carbon neutrality by 2050.
Despite some criticisms of the plan, the Ukraine crisis has thrown another curveball at the EU’s goals. And with member-states struggling to agree on caps and policies for gas imports, it remains to be seen whether the green energy plan can survive and if Europe can bear the cost of pursuing it.
Following soaring gas and oil prices, inflation within the Eurozone has also skyrocketed, leading to future concerns about economic contraction. The IMF has forecast that leading European economies will grow by just 0.7 percent in 2023, compared to most emerging economies, which will have 1.7 percent growth, excluding Türkiye’s economy, which is expected to grow by 3 percent.
Asides from continent-wide consumer crises, EU civilians, will further pay the price since gas is in demand for heating households over the winter. Additionally, on October 4, EU Crisis Management Commissioner Janez Lenarčič warned that blackouts across EU countries are probable, while various countries, including Germany, are already preparing for the worst.
Stark divisions have become apparent over the EU’s response to the energy crisis, such as how leading member-states France and Germany have disagreed on price caps. Even poorer EU economies like Hungary and Bulgaria have said they cannot afford the financial costs of moving away from Russian energy.
While price caps have been promoted as a necessary solution, they will not solve Europe’s underlying economic crisis in the long term and will merely provide short-term alleviation for the economic strain across Europe. This comes as EU countries have also subsidised households with small amounts; while necessary, these are only a temporary band-aid to the continent’s consumer crisis.
There are structural issues that have intensified the economic crisis. Europe does have the capacity to extract gas from alternative sources, but the infrastructure is still not there. Although there are talks about building such infrastructure, pipelines have not yet been laid and might struggle to be long enough. even the US, which has more natural gas, does not have the transportation infrastructure to meet Europe’s demand.
After all, Europe has recently struggled with a lack of regasification infrastructure, with sixty liquefied natural gas (LNG) tankers from the US have been floating around the Mediterranean even as the EU struggled to adapt to the new supply.
On the other hand, gas prices dropped below 100 euros MWh this week for the first time since June, showing that a lack of supply has been among the main issues.
Fossil fuels have played a crucial role in maintaining economic growth and are used for all sorts of essential goods, including plastics, electronics, medicines, and synthetic fabrics. Dropping supplies have therefore contributed to the rising inflation of such goods.
Asides from the cost-of-living crisis, Europe is also struggling in terms of its energy-dependent industries, particularly in the pharmaceutical and chemical industries, automotive sector, and precision manufacturing. Many of these are heavily energy and raw materials-dependent sectors. This adds another risky dynamic as European countries may have to decide between heating their citizens’ homes or maintaining the industries.
Some mega factories in Europe, such as in Spain and Germany, have been forced to reduce production, showing that as the crisis rages on, the EU’s major economies could further suffer from these productivity slumps.
Green energy plan
The EU’s economic vulnerability can be traced to the EU’s green energy plan. Per these plans, the use of crude oil and natural gas would need to be fazed out substantially in anticipation of the 2030 deadline. More sustainable energy sources like solar panels and wind turbines would replace them.
Asides from the fact that many minerals for renewable energy like nickel, aluminum, and copper, come from Russia, the move from nuclear energy and fossil fuels has left the EU vulnerable. In 2020, the EU produced 24 percent of the bloc’s overall electricity from nuclear plants. Yet, from 2006 to 2020, there was a 25 percent reduction of electricity from splitting atoms in the EU. Moving from nuclear energy has left EU economies unprepared for the price shock from Russia-Ukraine war.
The EU has also resorted to exploring fossil fuels again as a short-term fix for the energy crisis. According to forecasts from the International Energy Agency (IEA), Europe's LNG imports will increase by over 60 billion cubic metres (bcm) this year.
Europe has looked to other countries to fill the shortages, such as Italy and Spain striking deals with Algeria to import gas, while Germany signed a deal with Abu Dhabi’s National Oil Company on September 25 to import 137,000 cubic metres of LNG. Further deals between the EU and GCC are likely to be on the cards.
Although Algeria can be a provider, it does not currently possess the substantial domestic infrastructure to cover Europe’s needs. And with a lack of connecting infrastructure in the GCC, this may also be an obstacle for cheaper energy in the short term.
As I’ve argued, maintaining supply is important for keeping energy prices lower, and the removal of nuclear energy has left the EU vulnerable. Even in France, though it is 70 percent dependent on nuclear energy for electricity, natural gas prices still affect its pricing. Even so, France’s inflation was mildly lower in the EU, at 6.2 percent, compared to the wider Eurozone’s rate of 9.9 percent.
Following various disagreements within the EU, nuclear energy was eventually designated as renewable energy in July 2022, despite previous concerns over nuclear waste management. Although the EU decided that nuclear energy is acceptable based on certain regulations, such as finding tolerable storage for waste, it shows it is an essential need for the EU’s economy to stabilise.
Even so, the issue of nuclear energy has once again divided EU member states. France, Hungary, and the Netherlands are favorable to nuclear power, while Austria and Luxembourg are opposed. Other countries like Belgium and Germany are more uncertain. After all, though Germany initially planned to shut all its nuclear units by April 2022, it will keep three of them open until at least April 2023.
Europe is certainly conflicted over how it can approach the energy crisis and what its priorities are. How much economic pain it is willing to endure could motivate its decisions over the next decade. And given that Europe is struggling to ensure it can move away from fossil fuels, it also may need to further revise its expectations for green energy.
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