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17 March 2022updated 19 Mar 2022 7:04pm

Energy policy is a vital battlefront in Putin’s war – so let’s take away his leverage

Overcoming our dependence on Russia’s hydrocarbons will be essential in turning its strength into a weakness.

By David Gauke

The great Australian cricket captain, Richie Benaud, used to ask himself a simple question when he was unsure of a decision on the playing field: “what would my opponent least like me to do?” It did not always give him the right answer, but he found it to be a pretty good guide.

In circumstances vastly more important than even a Test match, it is worth asking ourselves a similar question in terms of energy policy. “What would Vladimir Putin least like us to do?” is not the only consideration, but it is not a bad starting point.

Boris Johnson was right to say that “Putin’s strength – his vast resource of hydrocarbons – is also his weakness”. A large part of Russia’s economy is dependent upon exporting oil and gas at a time when their prices have risen substantially; European countries are simultaneously imposing sanctions but also increasing the amount they are paying to Russia for energy resources. The UK does not import much gas or oil from Russia but a world without Russian fossil fuels would be a world in which energy prices would rise very appreciably – including in the UK. We remain vulnerable. But such is Russia’s dependence on energy revenues, it is also exposed if those revenues are reduced.

Returning to our question – what would Putin least like us to do? – the obvious answer is to reduce the West’s dependence on Russian gas and oil. How to do that?

The booby prize should go to those who say we need to abandon renewables and go all in on fracking. Though not every argument against fracking is compelling. It might not provide any new energy for a couple of years, but we may need it soon. It still involves emitting carbon dioxide, but nobody seriously believes that we are going to cease all carbon emissions immediately, and shale gas would replace other hydrocarbons. It will provoke strong local opposition, but at times of crisis parochial interests have to be subordinated to the greater good.

Nonetheless, onshore fracking will not produce sufficient gas to change the international market price. It will not, therefore, result in lower prices for UK consumers. Securing more supplies of liquefied natural gas, or even using fracking technology to extract more from the North Sea, are likely to be more effective measures to put a downward pressure on energy costs.

If the focus on onshore fracking appears to be a distraction, the attack on renewables is even more bizarre and ill-timed. In fact, it could be described as doing what Putin would want most. Wind and solar power can reduce our dependence on gas, can do so quickly (a key consideration in the current context), and the economic case is strengthening all the time (even taking into account the intermittency costs of renewables). The government is right to focus on expanding these sectors rapidly, and should incentivise early construction and improving connections to the grid.

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Reducing demand is the policy that is most likely to deliver immediate benefits. We can encourage people to lower their thermostat. Advice of “put on a jumper” will attract much mockery but will make a difference to energy consumption. Attempts at government action to encourage home insulation have generally been ineffective, but if this became a national mission over the next few months – on a par with the Covid vaccination programme – something significant is achievable. Other countries have made much more progress.

[See also: Switching off Russian gas could put the planet on the road to a green economy]

Of course, the UK’s contribution to hurting Russia’s energy revenues will be limited. Members of the EU are dependent on Russian energy supplies, not Britain. Germany’s abandonment of nuclear power was a huge geopolitical and environmental mistake, although this process has been slowed. There does not yet appear to be the political willingness to reverse that and, even if there was, it would not make much difference until a decade from now.

Many have called for a full boycott of Russian energy. There are EU moves to phase out the use of Russian oil and gas but an immediate ban is seen as risking the lights going out and is, therefore, unsustainable. Putin would probably think it more likely that the West would crack before the Russians do.

It would be a mistake, however, to think that this is a binary question: to buy or not to buy. One idea that is worth further consideration is imposing immediate punitive tariffs on Russian energy.

Generally, tariffs punish consumers by putting up prices, but when it comes to energy the economic cost (the “tax incidence”) is likely to fall largely on the supplier. Russia will still have to charge at the international market price and will have to absorb the cost of the tariff. The market price will likely rise (no policy is cost-free) but the bigger impact will be reduced Russian profits and a useful source of revenue for those countries levying the tariffs. This revenue could then be used to protect living standards or fund additional support to Ukraine.

Energy policy is a vital battlefront in Putin’s war on our values and security. Overcoming our dependence on Russia’s hydrocarbons and exploiting his dependence on hydrocarbon revenues will be essential. In an area of some complexity, policymakers must ask themselves what Putin would want least. There is still much that can be done.

[See also: Why a Russian oil embargo will be ineffective without EU support]

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