The impact of Russia’s Ukraine war
Russia’s incursion in Ukraine in February sent shockwaves through global energy markets. The war forced a rethink on energy security in Europe especially, as it exposed a reliance on Russian energy. Russia is a major fossil fuel producer – the world’s largest exporter of gas, second largest of oil, and third largest of coal. Europe is especially reliant on Russian gas. Before the invasion, 40 percent of the gas used to heat European homes and drive industrial processes came from Russia.
In the short term, the war has seen European policymakers scrambling to find new sources of gas ahead of the upcoming winter – the first in 50 years without Russian energy supplies. European countries are compensating for lacking Russian gas by slowing the shift away from coal and nuclear power, by building infrastructure to import gas from elsewhere, accelerating renewable energy deployment and saving energy. Major economies like Germany have built new import terminals to switch from piped Russian gas to liquefied gas shipments from the US and the Middle East. France has also moved to keep existing nuclear power plants online, while other countries are burning more coal.
These short-term measures, however, are not long-term climate solutions. High energy prices in world markets encourage continued investment in new coal, oil and gas production, which runs counter to the climate objective. But they also promote investment in clean energy supply, investments to use energy more efficiently, and shifting from fossil fuels to electricity for example through heat pumps and electric cars. The sky-high prices of 2022 will not last.
It appears Russia’s President Vladimir Putin has done more to speed up the clean energy transition in Europe than anyone else, by making the transition to clean energy an issue of security. Europe’s big Russia lesson is that dependence on energy imports can be dangerous. Diversification of import sources helps but there is a fundamental sense that a safe energy supply needs domestic energy production. For any country not rich in fossil fuels this means renewable energy, or in some cases nuclear – climate-friendly options that also avoid the risk of future energy price shocks. In the words of Germany’s finance minister, “renewable energy is freedom energy”.
Russia’s invasion of Ukraine has highlighted the benefits of renewables for energy security. Countries moving away from coal, oil and gas will be less captive to the nations that produce them, and less exposed to international price hikes and disruptions to supply chains. Almost all major EU economies have raised their renewable energy targets in response to Putin’s invasion of Ukraine. In May, the European Union set out a plan – called REPowerEU – to cut Russian gas imports by two thirds this year and to end them altogether before the decade is out. The strategy will cut Europe’s overall gas use – not just Russian gas – by a third by 2030. It also sets more ambitious 2030 targets for renewable energy and energy savings; and requirements for new buildings to add rooftop solar installations.
Rising investment in clean energy
The new US Inflation Reduction Act gives huge subsidies for American clean energy industries. Europe supports its own emerging zero-carbon industries, as does China and other East Asian countries. The Paris-based International Energy Agency (IEA) in its flagship annual report released last week, finds that global clean energy investment is poised to rise quickly.
For countries strong in clean energy technology, there can be a positive feedback effect on climate policy. If domestic industries benefit from the shift to zero carbon energy, then that is an extra reason for setting stronger emissions targets, and encouraging other countries to do the same.
And those greater investments in advanced green technologies tend to bring prices down, also making large scale deployment more affordable in developing countries. This has been seen in the dramatic reductions in the cost of solar panels over the years, and it can be the case with other technologies from energy storage to electric cars.
The quest for industrial leadership in the shift to zero-emissions energy, industrial and transport systems holds real promise to drive global greenhouse gas emissions down. In this light, the COP27 climate negotiations offer a chance for countries to affirm their commitment to cut emissions and strengthen their targets. That will hardly make up for the troubled state of affairs on climate finance. But it could be helpful in keeping the global climate talks on a positive track in difficult times.