The Missed Opportunity of Europe’s Energy Crisis

Before he began dropping bombs on Kyiv in February 2022, Russian President Vladimir Putin prepared for his invasion of Ukraine in a quieter way. He restricted energy exports to Europe in late 2021, driving up prices across the continent. After the invasion, Putin restricted exports even more, putting European countries in a bind: should they fund the Russian war effort by buying fossil fuels at elevated prices or risk losing critical energy flows at a time when stocks were already depleted? As countries began banning Russian oil imports and trying to cap the worldwide price of Russian oil, energy prices in Europe skyrocketed, with natural gas prices peaking at ten times their prewar average. Prices have fallen since, but the volatility and geopolitical vulnerability inherent in fossil fuels remains.

The European energy crisis is a wake-up call to the dangers of fossil fuel dependence. But too many countries are hitting the snooze button. Putin’s attempt at energy blackmail highlights more profoundly than ever before how continued reliance on fossil fuels not only harms the climate but also threatens security and prosperity. Although Europe avoided the immediate threat of winter shortages, thanks in part to mild temperatures, too few leaders are doing enough to reduce their susceptibility to such blackmail in the future. Instead of taking comfort in escaping Putin’s energy trap, governments must do more to speed away from fossil fuels and ensure that such vulnerabilities become a thing of the past.

LIMITED AMBITIONS

The scale of that vulnerability is immense. In peer-reviewed research at the Climate Solutions Lab at Brown University, we calculated the cost to European countries of higher wholesale prices and state aid to energy users, from the lead-up to the war to the end of 2022. The bill for fossil fuel dependence came to more than a trillion euros. That’s more than ten times what Europe spent on support for Ukraine last year and also more than three times the spending required by REPowerEU, the bloc’s strategy for accelerating the clean energy transition and reducing reliance on Russia.

In the face of these gargantuan costs, leaders should be using every tool at their disposal to wean their countries off fossil fuels as fast as they can. Unfortunately, that has yet to happen. European governments have definitely made progress, but they are not pulling out all the stops.

For instance, the EU’s solar capacity is already on track to exceed what were supposed to be ambitious targets. As supply chain problems eased, capacity growth in 2022 exceeded the most optimistic prewar estimate of the trade association Solar Power Europe by 15 percent. But there is room to grow faster. Many projects are ready to break ground but find themselves held up by permitting issues. Truly ambitious policymakers would help cut through the red tape.

Wind power did not fare nearly as well in 2022 as its solar counterpart. Its expansion was hampered by long project timelines, complex permitting problems, the price inflation of components, windfall taxes on the electricity sector, and congested electricity grids that have trouble handling large new additions of power. Despite government rhetoric about moving away from fossil fuels, wind capacity growth was only two percent above the prewar estimates of the trade association Wind Power Europe. More troubling, investment in future wind capacity was 40 percent lower in 2022 than in 2021, the lowest level of investment in any year since the Great Recession.

The European energy crisis should be a wake-up call to the dangers of fossil fuel dependence.

The crisis spawned by the Russian invasion of Ukraine certainly directed greater attention to clean energy in Europe, but that focus has not yet produced the commensurate results. Governments are failing to seize the opportunities available to them. In terms of solar power, policy is lagging the market instead of leading it. When it comes to wind, governments have not addressed the key barriers that are keeping the industry from achieving tremendous growth. Overall investment in renewables actually dropped last year in Germany and the United Kingdom, the two largest economies in the region.

After tough haggling between the European Parliament and EU member country governments, the bloc set a new target in March of sourcing 42.5 percent of the continent’s energy from renewables by 2030, up from the previously agreed target of 32 percent. That seems ambitious—except that analysis from the independent energy think tank Ember shows that Europe is already set to outpace the 42.5 percent goal, with the ability to source 45 percent of its energy from renewables by 2030. In that light, leaders must reevaluate what is possible. Further analysis by Ember shows not only that Europe could get 50 percent of its energy from renewables by 2030 but also that it could decarbonize 95 percent of its power sector by 2035. Because renewable forms of energy come with no fuel costs, the savings from reducing fossil fuel dependence would offset the additional upfront expenditure required to develop renewables.

European countries are also being sluggish in their moves away from oil and gas. Ember’s models suggest that by 2035, Europe would need to get only five percent of its energy from gas. Even though no new gas plants “need to be commissioned beyond those expected by 2025,” some countries are acting as if gas demand will continue to be strong for years to come. Germany, for instance, is planning 60 gigawatts of new gas plants by 2030. The United Kingdom’s new energy security strategy, published in March of this year, calls for “maximizing supply of UK gas,” “maintaining and securing our gas import and export capacity,” and “ensuring long term investment in gas networks.” The country has recently signed a 15-year, $8 billion deal for gas imports from the United States. At the same time, the British energy security strategy contains little in the way of incentives for developing clean energy, highlighting how the government fails to see clean energy as a matter of energy security. According to the Institute for Energy Economics and Financial Analysis, Europe as a whole is building more than twice the gas import capacity it will need by 2030.

SLEEPWALKING INTO CRISIS

Last year’s energy crisis exposed the extent to which energy security depends on decarbonization. Too many leaders still view the extraordinary spending they had to allow as a temporary response to an “artificial” problem, as opposed to a recurring feature of fossil fuel markets that have proved vulnerable to geopolitical shocks since the 1970s. Russia had already shut off gas supplies through Ukraine four times in the last two decades. Moreover, various wars in the Middle East have disrupted petroleum supplies globally, including the Yom Kippur War in 1973, the Iranian Revolution of 1978–79, the Iran-Iraq War in the 1980s, the Gulf War of 1990–91, and the insurgency in Iraq and Syria of the so-called Islamic State (or ISIS) in the 2010s. Of course, the supply chains underpinning renewable energy are not free of geopolitical complications, but the actual energy source is invariably local and immune to interference—after all, once a windmill or solar panel is in place, no foreign despot can shut down the wind or the sun.

It is unrealistic, of course, to expect countries to switch entirely to clean energy overnight. Countries will need to make limited short-term investments in networks and storage for fossil fuels. But unfortunately, governments are doing much more than that: they are putting money into projects that make financial sense only in a world where heavy fossil fuel demand continues for decades. Policymakers can insist these investments are just precautionary, but this spending takes resources away from building renewables, electrifying new vehicles and buildings, retrofitting structures to be more efficient, and expanding the electrical grid. And once new fossil fuel facilities come online, their owners will be reluctant to surrender their newly built assets in the name of decarbonization, strengthening political resistance to the task of moving away from fossil fuels.

These problems are not Europe’s alone. In the United States, for example, the Inflation Reduction Act represents a tremendous leap in climate ambition, and like the backers of REPowerEU, its creators should be proud. But living up to its potential—and meeting net-zero goals—requires even more action. Even after the implementation of the IRA, the United States still has to cut emissions by another 500 million tons to be on track to meet its 2050 target of net-zero emissions, according to Princeton’s REPEAT Project. And as long as the United States remains dependent on fossil fuels, the global nature of energy prices means that the country will continue to be vulnerable to geopolitical shocks.

Europe is building more than twice the gas import capacity it will need by 2030.

Two or three decades ago, technology constrained the ability of countries to move away from fossil fuels. From storage facilities to electric vehicles to heat pumps, the equipment vital to replacing fossil fuels was either too expensive or in need of significant improvement. But in the intervening years, the pace of change has picked up: the technology has improved significantly and costs have come down dramatically. The question is no longer whether decarbonization can happen—it is happening—but it remains unclear whether decarbonization can take place quickly enough to stabilize the climate.

There remains plenty to do. Obviously, governments should extend maximum support to developing renewable energy. But nuclear power should also be on the table. Other sectors—such as public transport, the construction of new buildings, and the retrofitting of existing ones—need more government assistance with rapid electrification to take advantage of the bounty of cheap renewable power. Electrical grids need major investments to ensure that the power generated by clean energy can be well distributed. And governments need to cut down bureaucratic hurdles by streamlining permitting processes, fully staffing permitting offices, and making sure that decisions are issued as quickly and consistently as possible.

The alternative to such swift action is prolonged dependence on fossil fuels, a prospect that looks worse every day. Such dependence not only imperils the planet but also creates energy security risks from geopolitical events. Moreover, it is unnecessarily expensive at a time when renewables are becoming ever cheaper.

True energy security rests not just on securing fossil fuel supplies in the short term. Governments must use the buffer of those stocks to speed up the medium-term exit from fossil fuels. Indulging the dependence on fossil fuels is not hardheaded realism. Rather, it is tantamount to sleepwalking into the next crisis. It’s time for Western governments to wake up.