The Russian war in Ukraine exposed Europe’s high energy dependence on Russian oil and gas and made Western governments rethink their energy policy strategies.
Some, like the United States and the United Kingdom, which can afford to go without Russian fossil fuels without a massive hit to their energy supply, industries, and economies have banned imports of Russian oil, or in the UK’s case, plan to phase out such purchases by the end of the year.
Most others in Europe are not so lucky. Not only cannot they cut themselves off Russian energy supply in the short term, but they are feeling the pain of volatile skyrocketing oil and natural gas prices after Russia invaded Ukraine at the end of a difficult winter in which energy prices had already hit record highs.
The high energy commodity prices are being felt in the UK and the U.S., too, although they are not as dependent on Russian oil and gas supply as Europe is.
Prices are likely to remain structurally higher for months, even if they don’t hit $130 again, or records of $150 or $200 a barrel. High oil and gas prices and the overhaul of energy policies in Europe to free itself from a decades-long dependence on Russia are setting the stage for a renewed push toward clean energy sources.
High oil prices could lead to a spike in investments in renewables, which would build on the record clean energy spending in 2021, analysts and clean energy investors say.
“Massive Wake-Up Call”
Renewable capacity installation was booming even before Russia’s aggression in Ukraine. Now the war could be the incentive governments need to accelerate clean energy rollouts and invest more in hydrogen, solar, and wind, as they have pledged and have been urged by the International Energy Agency (IEA) and climate activists for several years.
It appears that the threat of a World War and enormous physical disruption to fossil fuel supply from a rogue regime could do more to speed up the energy transition than any net-zero commitment or recommendation.
“This is a massive wake-up call that is going to accelerate decarbonisation, and investments by countries and governments,” Sir Christopher Hohn, a billionaire hedge fund founder and activist investor, told the Financial Times Climate Capital conference this week.
The surge in oil prices is an incentive for governments to speed up decarbonization efforts, said Hohn, whose fund TCI Fund Management requires the companies in which it invests to reduce actual emissions at a pace consistent with the Paris Agreement.
“I personally believe that we’ll have demand disruption as we had in the 70s, and that there’ll be a dramatic acceleration in decarbonisation. I actually view it as a positive thing,” Hohn told FT.
Europe Overhauls Energy Policy
“Russia may inadvertently trigger a faster energy transition. Threats to supplies and high prices resulting from the conflict could harden policy and action underway in the EU, UK, and elsewhere to move away from fossil fuels,” Simon Flowers, Chairman and Chief Analyst at Wood Mackenzie, wrote on the day on which Russia attacked Ukraine at the end of February.
Two weeks later, the European Commission proposed a plan to make Europe independent from Russian fossil fuels well before 2030. The EU will seek to diversify gas supplies, speed up the roll-out of renewable gases, and replace gas in heating and power generation. All this can reduce EU demand for Russian gas by two-thirds before the end of the year, the Commission says.
“We simply cannot rely on a supplier who explicitly threatens us,” European Commission President Ursula von der Leyen said.
Speeding up the rollout of renewables and renewable gases to replace Russia’s gas is a key pillar in that strategy.
“Putin’s war in Ukraine demonstrates the urgency of accelerating our clean energy transition,” Executive Vice-President for the European Green Deal, Frans Timmermans, said.
Challenges To Faster Energy Transition
Europe and the other Western allies have an immediate incentive to accelerate clean energy adoption, more urgent than any net-zero by 2050 pledge: not to remain hostage to Russian oil and gas.
The urgency of being able to shun Russian energy without massive repercussions on energy supply is set to speed up renewables installation and use of hydrogen in industries. The costs will be high for governments, and for households, too, as energy prices are likely to stay volatile and power prices high.
The cost inflation in materials and metals for making solar PV panels or wind turbines, the high fuel prices, and the supply chain bottlenecks rattled first by the pandemic and then by the war in Ukraine, could slow renewables capacity additions, even if governments and solar and wind power developers are ready to splurge whatever it takes on boosting clean energy generation.
Still, policymakers in Europe and the United States have realized that the cost of continuing to rely on Russian oil and gas could be much higher than the costs necessary to accelerate renewable energy deployment.
“Perhaps good things are going to come out of this, not for Ukraine, not for Russia-Europe relations, but possibly for energy and environment,” Professor Jonathan Stern at the Oxford Institute of Energy Studies told Al Jazeera earlier this week.
By Tsvetana Paraskova for Oilprice.com
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