Opinion: Europe’s energy challenges
Surging demand and dwindling supply, along with reducing reliance on Russian gas, necessitate a unified European strategy
By Ablaz Mohammed Schemnad
The European union (EU), which imports nearly 60% of its energy, is grappling with autonomy challenges. Factors like Russia’s manipulation of gas supply post-Ukraine invasion, varying electricity demands, climate change concerns and the pursuit of supply security underscore this struggle. In 2009, the EU addressed these issues through a legal framework in Article 194 of the Treaty on the Functioning of the EU (TFEU). The 2022 Versailles Declaration revived hopes for sovereignty, aiming to reduce energy dependency.
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As of 2022, renewables constituted 40% of the EU’s electricity, followed by fossil fuels at 38.6% and nuclear power at 20%. However, the mix varies widely among member states due to geographical, resource, political and economic factors. In response to a surge in energy prices, member countries have implemented measures such as household subsidies and VAT reductions, with estimates indicating that they have spent 657 billion euros on such initiatives since September 2021.
The TFEU outlines four objectives for energy sovereignty: a functional energy market, supply security, energy efficiency, renewable development and enhanced network interconnection. However, the current energy crisis poses significant challenges to these objectives and without addressing them, the attainment of strategic energy autonomy seems unlikely.
Market Dynamics
In the realm of a free-market economy, the pricing dynamics of energy, influenced by diverse tangible and intangible factors, highlights significant volatility and susceptibility. This volatility became pronounced in the European economies after mid-2020, attributable to a complex interplay of factors. Chief among these was the sudden surge in demand post-Covid, aggravated by disruptions in the supply chain — a key driver behind the escalating energy prices.
Simultaneously, the embargo on Russian oil and gas notably contributed to this upward trajectory, impacting households and companies alike.
Industries such as aluminium, steel and cement that are heavily reliant on energy faced increased production costs, while the transport sector experienced substantial setbacks. Compounding these challenges were issues like the decline in French nuclear energy outputs and droughts. Tackling the dual challenges of surging demand and dwindling supply, along with reducing reliance on Russian gas, necessitates comprehensive policy measures and a unified European strategy.
Bruegel, the think tank, proposes a ‘grand energy bargain’ grounded in four principles: demand reduction, supply-side flexibility, market oversight and compensation for the most affected consumers. This proposal could serve as an initial step towards fortifying the EU energy policy. However, in the short term, substituting Russian oil and gas with coal proved impractical due to limited capacities and a threefold price surge in mid-2022. Diversifying energy sources was hindered by prior insufficient investments in renewables, making importing liquified natural gas (LNG) at a substantial cost the most viable substitute for Russian gas.
Dependency Risks
The surge in uncertainties in the energy supply landscape traces its roots to the Russian incursion into Ukraine in February 2022. The European Commission’s REPowerEu initiative revealed the EU’s heavy reliance on Russian imports, constituting 40% of natural gas, 27% of oil and 46% of coal, emphasising the need for alternative strategies. Following extensive damage to the Nord Stream gas pipelines in September 2022, the European Commission emphasised energy conservation, diversified supply sources and accelerated renewable energy deployment.
Simultaneously, the International Energy Agency (IEA) proposed a 10-point plan in March 2022 to curtail Russian imports. Germany, severely affected by the decline in Russian gas imports, entered agreements with various countries, while the EU strengthened ties with Algeria, Azerbaijan, Egypt, Israel and the United States, aiming to mitigate dependency risks. While these measures have served to reduce dependency on a single major supplier, they simultaneously introduce potential future supply risks, potentially emanating from political or economic instabilities. (REPowerEU: affordable, secure and sustainable energy for Europe. 2022, May 18. European Commission)
Renewables, Sustainability
The EU’s commitment to transitioning to renewable energy under the EU Green Deal aligns with the Paris Climate Agreement, targeting climate neutrality by 2050 with a 55% reduction in greenhouse gas emissions by 2030. The ‘Fit for 55’ package, a collection of proposals promulgated by the European Commission, emphasises carbon pricing, requiring the energy sector’s pivotal role. Despite surpassing the 2020 target with 22.1% renewable energy consumption, the current energy crisis hampers progress.
In 2022, major oil companies scaled back renewable targets, lured by substantial profits derivable from the fossil fuel sector. This would hinder REPowerEU’s plan to reach 45% by 2030. While subsidies and tax reductions in fossil fuels enhance affordability, they may inadvertently create disincentives for the widespread adoption of renewable energy sources.
Connectivity and Fraternity
The advantageous geographical positioning that enables unobstructed trans-border access significantly facilitates energy pooling. This highlights the criticality of connectivity among member states, a factor that concurrently presents a formidable challenge. The Trans-European Network for Energy (TEN-E) plays a crucial role in interconnecting energy infrastructure and fostering internal market integration. Predominantly, energy production within the European union relies heavily on petroleum products and natural gas, accounting for 59% of the energy mix. This over-reliance creates intricacies in establishing connectivity due to the discretionary powers of the member states in opting for various energy sources. Consequently, the potential unwillingness of member states to engage in energy sharing comes as a significant impediment. More focus on fossil fuels, as mandated by the REPowerEU plan, exacerbates the existing challenges associated with connectivity and mutual willingness to share energy resources.
The European union (EU) seeks global leadership, encountering internal and external challenges in its integration journey. Already a pivotal force in global trade and security, renowned scholar Andrew Moravcsik terms Europe as the “invisible superpower,” stressing its unity. The shifting power dynamics necessitates Europe to remain vigilant and prepared to address any potential vulnerabilities in its exchanges.
Transitioning from Russian dependence, Europe faces hurdles in its green power shift due to climate change concerns. Despite complexities, the EU remains a key player in global dynamics, necessitating adaptability to geopolitical shifts and environmental issues. The EU’s response to these challenges will define its role as a significant influencer in world politics.
