ENERGY SECURITYEurope’s Energy Choice
Russia’s war in Ukraine and the disruption of Russian gas exports to Europe has triggered an energy crunch, with price spikes unlike anything seen since 1973. And the situation will get worse before it gets better. Responding to the immediate energy crisis in the right way will help to address the broader climate challenge. Authorities must both buffer the shock of the gas crunch in the short term, and accelerate the transition to clean energy in the long -term.
Russia’s war in Ukraine and the disruption of Russian gas exports to Europe has triggered an energy crunch, with price spikes unlike anything seen since 1973. And the situation will get worse before it gets better. Russian natural-gas flows to Europe are likely to be further curtailed—or even shut off—before the northern winter, and sanctions on oil exports may soon start to bite into energy supplies, too.
The crisis is twofold. The urgency of keeping Europe warm and running through the next few winters must be considered alongside the imperative to accelerate the transition to clean energy. Many see a conflict here between the short term and the long term. But responding to the immediate energy crisis in the right way will also help to address the broader climate challenge. Authorities must both buffer the shock and accelerate the transition.
To be sure, the European countries that are most dependent on Russian gas and oil will struggle to secure power and heat for the coming winter. Gas reserves are only 65% full, and the Russian stranglehold will make it difficult and expensive to reach the European Union’s target of 80% before winter.
The crucial question for major economic powers, then, is whether they can manage through the winter without forcing their big domestic industrial gas consumers to shut down. The answer is probably yes, provided that Europeans demonstrate cross-border energy-savings solidarity (as suggested by the EU), and maximize the use of all other energy sources.
Letting high prices destroy marginal demand (including among private consumers) confronts policymakers with a difficult choice.
Contrary to how the situation is often framed in the media, this choice is not between climate change and civil unrest. No one doubts that Europe will need to increase its use of liquefied natural gas, continue burning coal over the next few years, and do more to help vulnerable communities and some industries manage higher energy costs. What matters is how policymakers approach these tasks.
Crucially, subsidizing fossil-fuel consumption by capping energy prices at the pump or the power meter will only aggravate inflation, effectively transferring taxpayers’ money to gas and oil producers. Handing out cheques to those most in need is a good idea, whereas eliminating the incentive for everybody to save energy is a terrible one.
