The War in Ukraine Is Speeding Europe’s Pivot to Renewables

Europe aims to lead the global fight against climate change by rapidly shifting away from fossil fuels. Yet in the wake of the pandemic, the continent was rocked by disruptions in its energy supply that caused prices to surge -– even before the turmoil triggered by Russia’s invasion of Ukraine. Now the forces have combined to put Europe’s so-called energy transition onto something of a wartime footing, testing the limits of an accelerated timeline to adopt new technologies and leaving consumers footing higher bills. 

1. How fast is Europe changing? 

A decades-long push into wind and solar energy has transformed countries such as Denmark and Germany into leaders in the technologies. The 27 countries in the European Union got about a fifth of their total energy from renewables in 2020 and had planned to double that share to 40% by 2030. In the wake of the war in Ukraine, the target was raised to 45%. Germany, which relied on Russia for the bulk of its oil, natural gas and coal, brought forward its goal of 100% renewable power by more than a decade to 2035. That’s a very ambitious challenge since wind and solar farms take years to plan and build. If anything, the crisis has made EU policymakers more committed to the bloc’s so-called Green Deal, the flagship climate policy that includes a massive package of laws to meet a target of zeroing-out greenhouse gas emissions by mid-century. 

2. What disrupted Europe’s energy supply? 

In 2021, Europe’s vulnerability was laid bare by an unexpected chain of events: A stronger-than-expected post-pandemic recovery (which created higher demand for energy) coincided with weather patterns that created unusually low wind speeds, at a time when natural gas was in short supply because of an unusually cold and long winter. As a result, electricity prices more than tripled from August to December. Then in February, Russia’s military campaign triggered rounds of financial sanctions against Moscow. President Vladimir Putin hit back by weaponizing natural gas flows to his neighbors. In late April, he escalated threats and shut off natural gas flowing to Poland and Bulgaria, though these are two countries where the impact was small.

3. Why is Russia such a big factor? 

Russia is the world’s biggest exporter of gas and Europe is its biggest customer. As coal and nuclear plants around the bloc were shuttered in recent years, some countries became more dependent on the giant pipelines carrying gas from Siberia. For many years, EU officials talked about the need to wean off of Russian supplies, but since both sides benefited, and gas delivered by pipeline was often cheaper (and cleaner) than other energy sources, little action was taken. The EU relied on gas for about a quarter of its energy, with Russia accounting for more than a third of that supply in 2021, up from 26% in 2001. When the conflict in Ukraine erupted, it was suddenly untenable for Europe to continue spending as much as $1 billion a day on coal, gas and oil imported from Russia -– since it was funding the war machine. 

4. How did Europe respond? 

Europe’s plans suddenly got a lot more urgent. First Nord Stream 2, a second gas link from Russia to Germany that had become entangled in a political battle, was put firmly on hold. As the U.S.

and other allies went ahead with an embargo of Russian energy, EU policymakers rushed to find alternative supplies. They hashed out a tiered retreat that began with a ban on Russian coal from August. Then they wrestled for weeks to try to develop a plan to phase out Russian oil this year and reduce imports of gas by two-thirds. It’s difficult as some refineries and chemical plants in the eastern part of the bloc are captive customers, as they get their feedstocks via pipelines from Russia

5. What’s the fallout?

Europe’s manufacturers took a hit because energy prices rose faster than in other regions. Some of the continent’s biggest fertilizer makers, steel producers and aluminum smelters cut production because power and gas prices at least four times higher than historical norms made them uncompetitive on world markets. German officials asked citizens to curb energy use and warned about possible rationing of natural gas, rattling companies from car manufacturers to cement makers. As the war dragged on for months, more economists predicted the energy crisis would cause Europe’s economy to shrink, tipping it into a recession.

6. How did Europe keep the lights on? 

Initially at least, there was a return to dirtier fuels. The use of hard coal and lignite to generate power in the EU rose 12% in the first quarter of 2022 from a year earlier as decommissioned plants were reconsidered. Longer-term, there are no easy tradeoffs for an energy mix that also includes about 35% oil, 12% coal and 13% nuclear. A push to bring in more liquefied natural gas by ship, which costs about four times more than Russian pipeline gas, was constrained by infrastructure and limited global supplies. There was talk of delaying the phase-out nuclear power in Germany and other countries -– a source of stable electricity virtually free of emissions -– but only Belgium extended the life of two reactors. At the same time, France’s aging nuclear plants, still the backbone of the region’s integrated power system, are becoming more unreliable. Output from the fleet may fall to the lowest in more than three decades this year.  

7. How fast can it shift? 

That’s not clear. Some member states, including Poland, questioned the ambitious shift to renewables in light of the war and record energy prices. But EU leaders have stuck with the Green Deal, pushing renewables and energy efficiency as the best long-term solution. What’s more, higher prices mean more of the burden is falling on consumers. It’s driving the fastest inflation in decades, pushing what’s known as the “the cost-of-living crisis” to the top of the political agenda. By the end of 2021, there was a slew of measures to help the poorest: France dished out “energy checks,” Italy limited price increases and Sweden offered rebates based on energy consumption. But these are likely temporary measures. The rupture with Russia means Europe will likely face higher energy costs for the foreseeable future. Overall, subsidies for renewables are being phased out, which means that energy prices will need to be high enough to cover the cost of green investments.

(Source: Bloomberg )

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