The climate and energy transition in Europe is meeting increasing geopolitical and geoeconomic headwinds amid rising global power competition. The gas and electricity crisis in Europe has become a stark reminder that the energy policy trilemma of achieving affordability, reliability of supply and environmental sustainability at the same time, is far from solved. The crisis has revealed how the over-reliance on fossil fuels import from few authoritarian states such as Russia could significantly increase climate and energy security risks and could undermine the viability of the energy transition. It has also bolstered voices urging for the revision or even the halting of the European Green Deal. This would be wrong.
Why it matters: The European Green Deal is not the cause but the solution to the energy crisis. It should also be the cornerstone of a new European energy and climate security strategy. Yet, its implementation despite generous funding from the Next Generation EU (more than 30% of the funds should be dedicated to energy transition policies and projects) will have to overcome the considerable headwinds of climate skepticism and opposition in EU societies, fueled by domestic and foreign political pressure. The political fallout from the current energy crisis and the specter of energy outages in the winter would require strong political will to power through necessary reforms that maintain energy security without comprising the climate transition process.
In the Russian fossil fuel grip: European governments are not only struggling to guarantee a reliable and cheap supply of energy but are also failing to overcome a fossil fuel lock-in. Instead of leveraging the abundant EU funding to rid themselves from an excessive dependence on imported fossil fuels, many European governments are promoting large-scale natural gas projects with dubious commercial viability.
Embracing short-term political interests and Russia-linked entrenched oligarchic networks, Germany has consistently supported the Nord Stream 2 gas pipeline although it undermines the EU’s decade-long strategic objective for diversifying away from Russian gas dependence and throws Ukraine and much of Central and Eastern Europe under the Kremlin’s bus. An increasingly assertive Kremlin has masterfully exploited these large-scale projects to divide Europe.
Many governments in Central and Eastern Europe including Bulgaria, Hungary, Greece, Romania, Slovenia and Slovakia are also doubling down on gas infrastructure investments. These gas investments come on top of the already-built TurkStream gas pipeline, Nord Stream’s smaller but equally detrimental-to-energy-security twin in the Black Sea. Such a wasteful gas gamble will increase the dependence on Russia by between a third and 50% stalling efforts to integrate European markets while locking countries into long-term expensive supply agreements.
A costly status-quo: The switch to natural gas comes amid a constantly shifting coal phase-out timeline. Under strong political pressure from interest groups, European governments propose dates for a coal exit that are not in line with the economic viability of individual power plants. Modelling assessments consistently show that an earlier closing of the lignite-fired power plants would yield overall higher socio-economic welfare than delaying the process. Yet, the premature shut-down of German nuclear power plants and the natural gas crunch in 2021 has provided a lifeline for coal. As European governments panic about skyrocketing power prices and back down to the pressure from industry and households, abandoning the coal phase out process altogether seems politically the most attractive option.
A delayed coal phase-out strategy derails efforts for the economic and social transformation of the coal regions. It also sends the wrong signal to the companies and workers there not to embark on the painful but more sustainable path to transition. State capture networks in Bulgaria, Hungary and Czechia, linked to the nuclear and gas industry in turn push for investments in alternative base-load generation crowding-out renewable energy investments.
Towards a new European energy and climate security strategy: The 2021 energy crisis has clearly demonstrated the need for a new European Energy and Climate Security Strategy. To implement it, European countries can utilize the mammoth EU recovery, cohesion and transition funds.
So what should be the main pillars of this strategy?
First, the most sustainable way to reduce the dependence on imported energy and at the same time decarbonize the energy mix is to replace fossil fuels with a locally-sourced renewable energy supply. Decarbonizing energy markets will also deliver a blow to Russia’s ambition to increase its economic and political influence in Europe.
Second, Europe should complete and liberalize its energy markets, removing bottlenecks that cause regional price divergence and wake up energy nationalism. Current investments in upgrading power transmission lines and smart grids, pledged by just a handful of European countries are insufficient to integrate a large number of renewable energy-based power plants in the electricity system.
Third, European governments should better harness the enormous potential for cutting-edge renewable technologies such as offshore wind in power generation (with a power generation potential of 3,400 TWh by 2030), green hydrogen and synthetic fuels in industry and low-carbon transport infrastructure. European countries should prioritize investments in R&D, innovation and market capacity, rather than on the passive consumption of technologies. Energy storage is a case in point. Governments across Europe should avoid wasteful investment in utility-scale batteries as the shift to this still-prohibitively-expensive technology should be driven by citizens and small businesses.
Fourth, a coherent European energy and climate security strategy should put energy consumers first. The high energy prices have sharply increased energy poverty across Europe with CEE and Southern European countries hit especially hard. Around 35 million Europeans are unable to keep their homes adequately warm this winter. This calls for a more profound EU-wide policy providing incentives for energy efficiency upgrades and a switch to local energy self-production.
The missing element: The implementation of the energy and climate security policies in Europe divides the countries into policy takers and policy makers. Improving energy governance is critical to overcoming differences between the two groups and achieving common European goals. Bridging the policy ambition gap calls for the introduction of new evidence-based policy instruments for monitoring the progress of member-states, such as a EU Energy Security Risks Index. Based on an objective, comparative assessment, the EU would be able to further and deepen harmonization of national policies across sectors and policy areas on the back of a long-term political, financial and social commitment.