Author: Hrisitina Saparevska                                                                                                                                                                  Date: April 25, 2022

Russia’s invasion of Ukraine has caused great distress across the world and especially in Europe. Right when the COVID pandemic was about to end and the expectations of economic growth had overtaken the western world, the escalation of tension between Russia and Ukraine destroyed every remaining positivism. Europe has once again been witnessing the devastating consequences of war after almost 80 years of peace. The immigration crisis, energy crisis, inflation and fear has struck EU leaders and led them into the discussion of the continent’s dependency on Russia’s natural resources. 

Russia is one of the big three oil producers and the second largest producer of gas, which makes it an energy superpower. Its main market is Europe as Russia accounted for almost 40% of Europe’s gas imports and about a quarter of its oil imports. 

The relationship between Russia and Europe has been kept stable by the supply of natural resources since the mid-1960s. During that time, the Soviet Union has always tried hard to prove that it was a reliable supplier to keep its trade with Europe and it has never cut off the gas supply.

Later, however, when the Soviet Union collapsed, gas pipelines ended up in Ukrainian territory and the problems for gas transit tariffs between Russia and Ukraine began. In January 2009, the dispute between the two countries escalated and Putin cut off the gas for Europe for the first time. As all 18 member states were affected, the European Union did not have a choice but to step in the conflict. After 2 weeks of negotiations the gas supply was restored, but the lack of trust between the two parties was here to stay.

After this incident some European countries put in efforts to diversify their gas imports by trading with other countries and others have tried to strengthen their relationship with Russia by building new gas pipelines that bypass Ukraine. The most recent streams have been Turk Stream (2020), going from Russia to Turkey and South-East and Central Europe and Nord Stream 2 (2021), connecting Russia and middle and Western Europe through Germany. The war started right before the newest NordStream2 was put into exploitation and its certification was suspended.

In the middle of this energy crisis, there is one main question that Europe needs to sort out – whether to escape the crisis by diversification of its energy sources and suppliers or by achieving energy independence by pursuing an ambitious green strategy for decarbonization?

The International Energy Agency's detailed 10-point plan for reducing Europe’s reliance on Russian gas, shows that EU is willing to pursue both strategies to prevent gas shortage in the short run and promote its energy independence in the medium and long run by simultaneously mitigate climate change and carbon emissions.

There are a few alternatives for diversification of gas sources in the short run. If Putin cuts off the gas, such an emergency would not allow for the use of only the available green energy sources, since they are far from enough to make up for the lack of Russian gas. Such an event might make some governments shift in the opposite direction and switch from gas to coal-fired power stations. In the past decade Europe has tried to eliminate coal from its energy production, since coal produces way more carbon dioxide per unit of energy than gas. However, an unexpected energy crisis might destroy the continent’s efforts to reduce air pollution and cost and climate sacrifice may be inevitable.

Another possible solution would be the installation of terminals for receiving liquified natural gas (LNG), a fossil fuel that is transported by tankers and does not depend on pipelines. This makes it easier for Europe to quickly find new suppliers. Many countries in Western Europe have already installed such terminals, but Germany and many South and Eastern European countries have not. Positive news for some of them is the development of the South Caucasian Pipeline, which could provide many South and Eastern European countries with gas supplies from Azerbaijan and cut their dependence on Russia.

Nuclear power is also a great prevention for energy dependency. France and the Netherlands aim at the construction of new nuclear plants, which will help them achieve energy independence. On the contrary, a gas shortage makes Germany one of the most vulnerable countries, due to its decision to shut down all of its nuclear plants provoked by the disaster in Fukushima, Japan.

While in the short-term the only option for EU member states is diversification, the long run solution for all of them is the production of renewable energy. Gas is more expensive than wind or solar energy, so the faster Europe achieves green energy independence the better. In this sense, the war in Ukraine could be the “accelerator” for new zero-emissions incentives and renewable energy revolution due to the increased focus on energy security.

Europe has a long history of government policies encouraging the production of renewable energy. The continent puts huge efforts in the reduction of carbon emissions. It was the first one to implement the government regulatory program cap-and-trade by creating a market for emissions trading. The EU has also worked hard for the liberalization of energy markets that create fair competition and keep the energy prices low. However, if the union really wants to achieve energy independence, even more in times of crisis, they need to step up their game even more.

The main problem for the green energy industry is not technical or economic-related. It is actually related to regulation. The approval process for wind and solar projects can take years in many member states. Therefore, investors have preferred gas projects that take considerably less time to get an approval than wind or solar farms. 

If Europe wants to keep up with the good work of decarbonization and have a strong response to the world energy crisis, policy makers should consider relaxing bureaucratic barriers and simplifying procedures to create an investor-friendly environment in the green energy sector.

The question is whose sphere of influence Ukraine is going to belong since it has been in the middle for so many years. We do not know how much time and how many casualties this process is going to take.

The one thing that we know is that, in the meantime, Europe needs to figure out a way to deal with the consequences and in the long run strive for full energy independence to keep the peace in the region and prevent detrimental events such as wars from happening in the future.

Every time there is some sort of energy crisis, innovations grow, and we learn how to eliminate the power of energy superpowers. Every time Russia or OPEC have unacceptable behavior, the innovation process is triggered. Therefore, even if in the short run, during the crisis, oil and gas producers increase their revenue, in the end everybody loses.