EU energy policies in a world at war
February's invasion of Ukraine instigated serious considerations on the energy policies of the European Union. A full round up of Europe's energy policies nine months after the start of the war.
Nine months after the beginning of the Russian invasion, Europe still lives under the consequences of the war.
Russian President Vladimir Putin did not expect the fierce resistance the Ukrainians bravely gave to the Russian army. Perhaps more surprisingly, the European Union did not crumble under energetic and economic hardship. Yet.
The resilience that the EU has shown can be found, of course, in its willingness to deal in Europeans above all, despite differences in approaches. Another reason for this sturdiness can be found in the speediness and positive results of its answers.
Let’s explore today the policies put forward by the EU in answering its energy dilemma, between supporting Ukraine, decarbonising its economy, and reducing its dependency on imported fuels on one hand, and the necessity to keep its economy running on the other.
Sanctions first
Quickly after the invasion, the EU was able to adopt a set of measures to asphyxiate the Russian regime and its war machine. After the 8th package was voted last month, the list of energy sanctions includes:
A total ban on Russian coal imports,
A total ban on Russian oil imports from February 2023,
A ban on maritime import of Russian oil,
A price cap on the transport of Russian oil,
A ban on the export of goods and technologies to the Russian oil sector,
A ban on new investment in the Russian oil sector.
These sanctions cripple the Russian economy and contributed seriously to the reduction of European dependency on Russia. The IMF estimates that “European infrastructure and global supply have coped, so far, with a 60 percent drop in Russian gas deliveries since June 2021.”
Furthermore “Our work suggests that a reduction of up to 70 percent in Russian gas could be managed in the short term by accessing alternative supplies and energy sources and given reduced demand from previously high prices.” — IMF blog
REPowerEU as a followup of ‘Fit for 55’
In addition to these sanctions, the European Commission proposed in May the REPowerEU plan to reduce the bloc’s imports of Russian fuels: coal, oil, and gas.
REPowerEU rest on three pillars: energy consumption reduction, fuel sources diversification, and investments in renewable energy, and will be financed by economies made by reducing Russian fuel imports (€100 million per year) and loans from the NextGenreationEU recovery plan.
So far, Member states reduced their gas consumption by 15%. Gas reserves are now almost filled up and partnerships with new suppliers have been signed, among them the United States, Egypt, Israel, and Azerbaijan.
The REPowerEU plan also raises the European objective of 40% of renewable electricity to 46% by 2030. The Commission also plans to boost hydrogen production.
We learned last week that European leaders have asked the European Commission to present a piece of legislation capping gas prices, which is to be discussed at the Council in the coming days.
The consequences of the EU’s measures
These measures have had consequences. Firstly on the Russian economy, which is on the brink of collapse. The situation is so tense that Russian Vladimir Putin decided not to attend the G20 meeting in Indonesia this week to secure his leadership in Moscow.
Then on Europe itself. Although gas prices increased drastically from €20/MWh in 2021 to €200/MWh in July 2022—up to €300/MWh in August—, they are now back to the €100/MWh mark as reserves are filling up. *
The high gas prices have, nonetheless, impacted general energy prices, and electricity in Europe rose to 40%, as you can see below.
Moreover, the war had consequences on the energy mix of European countries, with some reactivating old coal mines (such as Germany) or investing in liquefied natural gas (LNG) terminals (Germany and Spain, mostly).
Conclusions
The European answer to the conflict in Ukraine was clear: we must help Ukrainians and move away from our dependency on Russia. Europe’s energy policies have achieved both of these objectives.
Ukraine’s electricity grid has enjoyed unrestricted collaboration from the EU by connecting it with the rest of the continent. The European Union has moved out of Russian fuels, although not entirely.
As European braces for winter, the question of whether these policies can be sustained in the near future is a concern for all, especially in regard to the increase in electricity prices. Will Europeans continue to accept the consequences of the decision to move away from Russian gas? For how long? How much will it impact their livelihood and wallets?
One thing is certain: Europe's energy future is being played out on the battlefields of Ukraine.