The war in Ukraine and its consequences on energy transition
The Russian assault on Ukraine is particularly shocking given the terrifying human cost it has caused since its outset, notably in terms of millions of refugees and civilian and military casualties. In the space of just a few weeks, this situation of war in Europe, unseen since 1945, has overturned world order and stability. It has upended international relations, but also called economic fundamentals into question regarding the supply of fossil fuels and raw materials necessary for our economy, comfort and food. The war will also impact the climate and the course of the current energy transition, with negative repercussions in the short term but hopefully more positive ones in the long term.
The West’s decision to impose tough economic sanctions on Vladimir Putin’s regime, targeting the import of raw materials and fossil fuels of which Russia is a major producer, has exposed Europe’s, and especially Germany’s, heavy dependence on Russian gas via the Nordstream pipeline. Russia is the third largest producer of gas and oil, behind Saudi Arabia and the United States. Until now, Europe has relied heavily on Russian natural gas (22% of its total energy supply). The aim was not only to ensure its energy security at minimal cost, but also to implement an increasingly green energy transition by 2050. It should be remembered that natural gas is considered as a transitional energy by the European Union’s green taxonomy, even if it has been the subject of bitter debate.
The immediate reactions of European states do not bode well for the climate cause and indicate a temporary slowdown in the energy transition promised by the European Green Deal, whose objective is to reduce CO2 emissions by at least 55% by 2030 (compared to 1990 levels). On 8 March, the REPowerEU plan, presented by the European Commission, outlined responses to reduce this dependence on gas by two-thirds by the end of the year and completely by 2030. Part of the plan is certainly positive and emphasises energy efficiency, renewable energy and electrification as priorities. However, until renewable energies can deliver in sufficient quantities, Russian gas will initially be replaced by liquefied natural gas (LNG) shipped from the US or the Arabian Peninsula. Germany has already announced the construction of two LNG terminals as part of a long-term energy agreement with Qatar. More worryingly, the extraction of American shale gas, which is known to have harmful consequences for the environment and the climate, could be stepped up. Similarly, the phasing out of coal could be pushed back, as already announced by several countries, including France and Italy. As for nuclear power, its popularity is soaring again, despite persistent waste and safety issues, with Germany’s opposition to it having softened considerably since the beginning of the war.
The clock is ticking
This “pause” in the green transition is all the more worrying as the window of opportunity to positively influence climate change and limit its warming to 1.5 degrees is rapidly closing. The release of the Intergovernmental Panel on Climate Change (IPCC) report on 28 February went virtually unnoticed by the media due to the current international situation. Yet its conclusions are devastating since the threat to humanity −not just the environment− is so great and the timeframe for reducing emissions is so short. On the subject of energy, the IPCC and the International Energy Agency (IEA) are condemning the record rate of CO2 emissions generated by the energy sector in 2021: having reached 36.3 billion tonnes, their highest level ever (up 6% compared to 2020, the pandemic year). Despite the commitment of 80 countries at the last COP in Glasgow in 2021, the prospect of achieving carbon neutrality by 2050 is more uncertain than ever if the use of fossil fuels is not quickly ended. Furthermore, it is feared that the next COP27 in November 2022 will not be so easy to unite the Member States around binding objectives, once again because of the Ukrainian crisis.
In the longer term, a positive outlook for the climate and sustainable investment
On a more optimistic note, some observers still see a chance for the climate in the near future, through sustainable investment and Climate Finance. This is particularly true of BlackRock’s chairman, Larry Fink, who, in his now famous letter to investors, shares his belief that current events, including the astronomical rise in fossil fuel prices, will decisively accelerate the movement towards green energy and clean technologies and encourage more sobriety in our consumption. Energy efficiency in buildings and clean mobility −rail and electric cars− are two clear examples of areas that will benefit from the rising price of fossil fuels and will further attract the interest and capital of both responsible and traditional investors. On the Member States’ side, let’s hope that the current procrastination will quickly give way to more courageous commitments, such as those made by Germany, which recently took a stand for 100% renewable energy by 2035, 15 years before the 2050 deadline.