For almost twenty years, Europe has worked to create a homogeneous and liberalized internal market to meet the needs of Europeans and EU ambitions of becoming the world’s first climate-neutral economy. The target of net-zero emissions, whereas noble and ambitious, is also extremely difficult to achieve without careful assessment of the emerging environment.
To some extent, its political decision to go “100% green”, reflects Western geopolitical concerns vis-à-vis Russia. Protecting the environment and ensuring a just and equitable future for present and future generations is a question of “how” rather than “if”. As a result, strategies and policies that ignore ongoing realities and potential effects, risk becoming even more dangerous than the threats they purport to address.
Talking geopolitics
Contrary to popular belief, geopolitics did not become obsolete after WWII. The Ukraine invasion has demonstrated that we are now in the realm of intensified geopolitical and geoeconomic antagonism among great powers. Once more, we compete to control space, natural resources, and trade routes. We seek dominance and want to see our opponent kneeling before total defeat.
Russia is waging an economic war against the West in an attempt to undermine the US primacy over the Eurasian continent, exert power, and establish indirect control beyond its borders; thus, demonstrating to Europeans that interdependence between the two actors is a sine qua non of the continent’s peace and order status.
Any disruption in this relationship to the detriment of Russia will have serious consequences. To that end, Moscow has weaponized energy by taking advantage of Europe’s energy strategy loopholes.
On the other hand, the West (i.e., the US) appeared eager to provoke and push President Putin into a more aggressive stance in Ukraine; clearly, Europe followed in American footsteps. The EU, a large union of nation-states and a major global economic player, does not constitute an integrated union in political, defense, security, and economic terms, and therefore is not an active geostrategic player.
A divided Europe poses a serious threat to American control over Eurasia. Internal conflicts undermine their authority over the continent’s western bridgehead. As a result, a fully integrated and expanded Europe, under the aegis of NATO, as well as a potential security partnership with Russia, would be critical for US interests. [[1]]
However, a major source of concern in Washington was the prospect of deepening collaboration between Berlin and Moscow. Such a prospect would undoubtedly jeopardize Europe’s ongoing unification process, as well as American aspirations in the region.
EU energy strategy and implementation flaws
The concept of an Energy Union in Europe was introduced in 2014. The fundamental objectives of the EU’s energy strategy, according to that plan, are three: 1) security of supply; 2) sustainability; and 3) competitiveness-affordability.[[2]] To achieve these goals, the Energy Union focuses on five mutually supportive dimensions: 1) energy security; 2) the internal energy market; 3) energy efficiency; 4) decarbonization of the economy; and 5) research, innovation, and competitiveness.[[3]]
Some of the key policies adopted are: moderation of energy demand, reduction of external dependency (i.e., from Russia) through diversification of energy routes, sources, and suppliers, the establishment of a unified and competitive internal market, coordination of member-state energy policies to converge towards a shared foreign policy, increase of R&D projects aimed at promoting indigenous production, an increase of renewable project funding, and development of new energy technologies and infrastructure (e.g., the North-South Corridor, the Southern Gas Corridor, gas storage facilities, etc.).[[4]]
In the face of today’s crisis, we should ask ourselves: “What went wrong?”. Was the EU strategy a viable option? Were the correct decisions made? What are the upcoming challenges, where do they stem from, and what can be done tomorrow? Given the space constraints of this article, some brief but comprehensive remarks follow.
Security of supply is defined as “the availability of energy at all times in various forms, in sufficient quantities, and at reasonable and/or affordable prices”.[[5]] The related core policies put in place, at least in theory, were: diversification, promotion of domestic production, the internal market, which would sustain solidarity and cross-border trade among EU countries, and development of new infrastructure. As the dependency rate indicates, EU import reliance has slightly increased since 2000 (from 56% in 2000 to 58% in 2020).[[6]]
Despite declared EU goals, Germany chose to expand its cooperation with Russia and feed its economy with cheap gas, thereby strengthening its geopolitical ties with Moscow, which was alarming for the US.
Of course, western companies (e.g., ExxonMobil, Total, Eni, BP, and Shell) were involved heavily in the Russian energy sector; however, after the annexation of Crimea, they began to withdraw. Germany, on the contrary, did not. As a result, diversification and domestic production (aside from renewables) did not progress as quickly as they should have.
Berlin’s leadership in Europe hampered the efficient implementation of EU policies; the EU political structure could not prevent such development, resulting in a situation in which uninterrupted and affordable flows are no longer guaranteed. The blocking of Nord Stream and Moscow’s response exacerbated things. The increased competition for LNG supplies around the world makes it hard to procure, while American shale producers recently stated that “no bailout is coming for Europe”.[[7]]
Another issue is the popular misconception in Brussels that a total “green transition” is feasible in the short term. Europe has launched several low-carbon investment programs and has emerged as a global leader in climate policy. However, energy security is not achievable by abandoning fossil fuels but by adjusting the appropriate mix through time. It is impossible to completely phase out hydrocarbons very soon and support our economy by climate-friendly means alone. It is not just a question of politics, but also of capabilities.
Europe’s decision to reduce financial incentives for fossil fuels solely based on climate commitments, combined with the cultivated sentiment that we must only use renewables, has resulted in a coal and nuclear phase-out trend, as well as a downswing of support for fossil fuel R&D development, a decrease in natural gas production, low inventories prior to the invasion, and the need to buy at higher prices to stock up, depriving Europeans of alternative sources.
It’s as if an ideology took hold that refuses to accept reality. If not balanced, these trends may cause severe supply disruptions before necessary interventions in our energy system and society are implemented.
This “climate ideology” appears to distort facts and may even threaten the transition itself: if the ongoing crisis remains unaddressed, a significant increase in the use of dirty energy could potentially derail countries’ commitments to sustainability.
Market structure is another aspect of ideological nature. The chosen structure was intended to harness the advantages of the free market for the benefit of consumers, in the context of a general liberalization spirit and the view of energy as just another tradable commodity. Unfortunately, during the ongoing crisis, this structure demonstrated its inefficiencies. The establishment of LNG spot markets resulted in the creation of new trade hubs (TTF in Europe), which eventually incorporated pipeline gas contracts. As a result, natural gas became a commodity traded on the stock exchange.[[8]]
Due to climate priorities, natural gas was embedded in the system in such a way that it eventually shaped the price in the electricity market (also a traded commodity), making the offsetting contribution of other sources trivial for the final cost. Electricity prices erupted because of politically induced supply shortage, fear, and a subsequent sharp increase in demand following the lockdowns.
Stock markets, as is well known, do not always reflect the actual value of commodities; additionally, prices fluctuate in the blink of an eye based on economic sentiments, and even a single statement can reverse price trends; finally, they are susceptible to speculation by market actors. As a result of how the energy market works, natural gas trades at prices that are far from reality, based on TTF prices that are easily inflated or manipulated in times of crisis, adding to the burden of electricity costs.[[9]]
What should Europe do?
Here are some quick thoughts on how Europe should respond to ensure greater resilience for the European energy system:
- Since energy policy is inevitably influenced by the geopolitical state of affairs, the EU should contemplate its structure and geostrategy and find answers to existential questions about its future. Is it necessary for Euro-Atlanticism to lead to conflict with Russia? Is it possible to completely cut energy ties with Moscow? Is it the best strategy to thrust your fist at the knife? Energy security and European overall defense and security intertwine. To be even more efficient, organized, and insightful before such events, a new executive body could be introduced, having the authority to make decisions and act on behalf of all member-states in times of crisis. It is imperative to avoid lingering and being ill-prepared.
- The EU should reconsider its energy strategy and its decision to aggressively phase out fossil fuels. No forecast excludes them from the energy mix of the coming decades. A broad public debate should take place; which is the optimal mix, and how can it be achieved? Energy security is linked with the use of fossil fuels. It is up to technological progress to determine how quickly we will abandon them. Meanwhile, disrupting continuous energy flows and jeopardizing social cohesion and the economy should not be on our list. For sustainable development, intragenerational equity is just as substantial as intergenerational equity.
- While previous decades had “market liberalization” as a motto, we are now witnessing the nationalization of major energy companies. An open discussion about the energy market structure is necessary among stakeholders. Several proposals, many of which are in the right direction, are on the table and systemic issues ought to be faced. Also, because the ultimate goal of market actors is profit, perhaps the synergy of state and private companies in a hybrid market could reconcile private initiative and public interest under the control of an independent authority.
- Decoupling natural gas prices from electricity prices would reflect the former’s true participation in the mix and allow low-cost technologies to make a real impact. Moreover, supply through long-term contracts for large consumers (industries, energy communities, municipalities, administrative regions, ministries, the EU, etc.) should become the norm and shift power from producers to consumers. Further improvement of the energy exchanges framework is required and fully-funded renewable energy installation programs for low-income citizens —to promote self-sufficiency and combat energy poverty— alongside general energy self-production programs, should be actively promoted.[[10]]
- Apart from renewables and new technologies, the EU should encourage the development of indigenous hydrocarbon resources to strike a balance between its climate targets and the volatile reality. Strong and multifaceted cooperation in the Mediterranean and Gulf regions should be pushed forward, together with establishing a hybrid Eastern Mediterranean Energy Corridor.
Conclusion
Natural gas is the energy transition fuel, and this crisis is predominantly a gas crisis. All players want to control this resource, either directly or indirectly. The energy interdependence of the EU and Russia served as a “cushion” for both. Its loss would signal the need for a different type of balance, which could eventually become a balance of force, threatening European security and stability. Perhaps Moscow will now look for other ways to exert political influence in the EU, widening the gap in mutual understanding.
Europe was unprepared for a possible conflict with Russia, its primary energy supplier. Its strategy fails both in principle and execution, as well as at the structural level. The ideology component is threefold: an “impossibility of war in Europe” mentality, a “climate ideology” that omits the need for fossil fuels in our current system, and a liberalized view of markets which ignores the human factor.
A realpolitik approach seems most appropriate for dealing with the challenges lying ahead of us.
The structural component reflects the fact that official EU policy was at odds with its actual policy for two decades. German leadership brought Russia closer, which had consequences, and now we are obliged to deal with them.
It is not implied here that we should cut ties with Russia anyhow. Nonetheless, Europe’s lack of clarity of intentions and actions causes problems to its foreign policy and, ultimately, to its interior. Such disparities may be unmanageable unless a central question is addressed: will Europe be autonomous or merely a follower of the US? Furthermore, will it be led by a unified center, a nation-state like Germany or France, or by them both? Meanwhile, Europe must restructure its market and energy strategy to transition to a new economy without destroying its current one. Being a sustainability leader does not entail ignoring economic and social imperatives but rather determining the best course of action for both societies and the environment.
11. REFERENCES.
[[1]] Zbigniew Brzezinski, The Grand Chessboard: American Primacy and Its Geostrategic Imperatives (New York: Basic Books, 1997), 85, https://www.cia.gov/library/abbottabad compound/36/36669B7894E857AC4F3445EA646BFFE1_Zbigniew_Brzezinski_-_The_Grand_ChessBoard.doc.pdf.
[[2]] “Energy Union,” European Council for an Energy Efficient Economy, accessed September 17, 2022, https://www.eceee.org/policy-areas/energy-union/
[[3]] “Energy Union,” European Council.
[[4]] “Communication from the Commission to the European Parliament and the Council: European Energy Security Strategy,” Energy, Energy Strategy, Previous Energy Strategies, European Commission, accessed September 18, 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52014DC0330&from=EN
[[5]] “Security of Supply,” EEA Glossary, European Environment Agency (EEA), accessed September 18, 2022, https://www.eea.europa.eu/help/glossary/eea-glossary/security-of-supply
[[6]] “Energy in the EU: From where do we import energy?”, Eurostat, accessed September 18, 2022, https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html?lang=en.
[[7]] Justin Jacobs, Derek Brower and Myles McCormick, “US shale bosses tell Europe: ‘There is no bailout coming’,” Financial Times, September 14, 2022, https://www.ft.com/content/ef4fb2b8-1b28-43f3-b34f-13e98c769e63
[[8]] Dimitris Kardomateas, “Detailed presentation: How the energy crisis was created, why high prices will become a permanent problem and what can be done”, Energy Press, February 10, 2022, https://energypress.gr/news/analytiki-paroysiasi-pos-dimioyrgithike-i-energeiaki-krisi-giati-oi-ypsiles-times-tha-ginoyn
[[9]] Kardomateas, “Detailed presentation.”
