The energy price crisis and the war in Ukraine have brought home the extent to which Europe is reliant on volatile oil and gas, much of it from Russia, to power industry and heat homes. From imposing windfall taxes on energy companies that are profiting from high energy prices, to banning fossil fuel imports from Russia, there is no shortage of solutions being bandied about which aim to diversify energy supplies and reduce the amount of cash paid to Moscow.
At the same time, climate activists and many politicians are advocating for renewables as a way to reduce emissions and Europe’s dependence on Russian oil and gas. But what are the solutions that could really bring about long-term change?
Next week, the European Commission will publish its proposal for dealing with these connected challenges. In the latest version of the document, seen by the New Statesman, the EU executive will propose six actions, which it claims will help wean EU countries off Russian energy, while delivering on climate action. These measures include: diversifying gas supplies by increasing imports of liquid natural gas (LNG) from countries such as Japan, South Korea, China and India; making it easier to build renewable energy infrastructure; delivering “solar power for all”; and ensuring greater energy efficiency through, for example, home insulation.
The International Energy Agency today published a similar ten-point plan, which it says could cut Russian gas imports into Europe by at least a third, and by as much as a half, by the end of 2022.
Britain is much less exposed to Russian gas and oil imports compared to many EU countries, but consumers and industry are still being severely impacted by shocks to the global market. The Labour Party has called for the government to introduce a one-off windfall tax on North Sea oil and gas producers, who are recording significant profits on the back of high prices. The party says this would raise £1.2bn which could be used to help households struggling to cope with higher energy bills.
The European Commission’s proposal falls short of calling for a windfall tax. Instead, it acknowledges that some governments may “exceptionally decide to introduce tax measures” and insists that any such initiative would need to be implemented carefully to avoid distorting the market.
The UK Chancellor Rishi Sunak has said that the idea of such taxes sounds “superficially appealing,” but that it would ultimately deter investment. Indeed, energy transition experts are far from united on whether simple-sounding solutions, such as taxing company profits, at least more than those of oil and gas majors, or banning Russian fossil fuels imports, as demanded by many civil society groups in Ukraine, are actually the right way forward.
The suggestion of a windfall tax is “more of a political move to show that something is being done, rather than a deep commitment to solve Europe’s dependence on Russian oil, coal and gas imports,” says Arjun Flora from the Institute for Energy Economics and Financial Analysis. “A tax only makes sense if it is temporary and used to help the most vulnerable survive high energy prices.” It is also important to understand “who is really being taxed”, he adds. While it is one thing to tax the likes of Shell or BP, in countries where energy companies are state-owned, a windfall tax could simply mean reallocating taxpayers money or the state budget rather than having any tangible impact on consumer bills.
An all-out ban on imports of oil, coal and gas from Russia could also backfire and push consumer energy prices up even higher, warns Flora. “It could lead to political unrest, inflation and recession, which is why governments have been careful to exclude energy from sanctions.” Poland has called on Brussels to ban fossil fuel imports from Moscow, but this is because the country still relies heavily on coal, rather than gas, says Flora. And only around 9 per cent of all coal consumed in Poland is imported from Russia.
“It’s a tricky proposition as it introduces regulatory uncertainty,” says Tara Connolly from the NGO Global Witness, about the idea of a windfall tax on utilities. “Governments coming in and suddenly skimming off part of your revenue is not good in times when you want massive investments in renewables. Plus it is very hard to get done, how do you more or less accurately set the tax level? You’re in for protracted negotiations, hassle and even court cases.”
Connolly, however, gives her full backing to a ban on fossil fuel imports “given that Europe is bankrolling Putin through its purchases of fossil fuels and other materials, and thereby dampening the effect of financial sanctions.” But insists “it would have to be done with a full commitment to sheltering energy poor Europeans”.
For Kingsmill Bond, an energy strategist at the US NGO, Rocky Mountain Institute, deciding what are the best ways to reduce reliance on Russian fossil fuels, support Ukraine and move forward with climate action means “distinguishing between emergency and short-term solutions, and longer-term solutions”. With this in mind, neither he, nor many of the other experts interviewed, seemed overly troubled by an increase in coal burning or greater reliance on LNG in the immediate future.
“In the short term it is hard to replace Russian fossil fuels,” says Bond. “In the long term it is now inevitable. This is a last hurrah for the fossil fuel sector. This [crisis] will drive the energy transition faster. The renewable future has been pulled forward and the gas bridge shortened.” By this he means, that the long-held perception by many countries such as Poland, that gas could be a transition fuel between coal and cleaner sources of energy is finally being addressed.
“Poland has always been very reluctant to have a renewables agenda,” says Raphael Hanoteaux from the think tank E3G, but there is a growing optimism among climate activists that this may now change. “What seemed politically impossible last week is suddenly necessary: we are now seeing the most astonishing statements,” says Connolly. German government ministers have in recent days said that installing new gas boilers doesn’t make sense and even referred to renewables as “freedom energy“.
Wind and solar farms and battery factories cannot, however, spring up over night. But the EU and the UK can unleash “a radical and unprecedented programme of insulating buildings and shifting gas boilers to heat pumps before next winter to make sure we can both keep our homes warm without bankrolling Putin, and get us off this climate-wrecking fossil fuel for good,” says Connolly. Ireland, for example, has introduced an emergency scheme that offers grants to pay for 80 per cent of the cost of attic and cavity wall insulation.
Every year around 1.7 million gas boilers are installed in the UK. “If we were to install 1.8 million heat pumps instead for two years in a row we could get rid of Russian gas imports for home heating entirely,” says Jan Rosenow from the Regulatory Assistance Project, an energy transition think tank.
The veteran US environmentalist Bill McKibben has called for US President Joe Biden to “immediately invoke the Defense Production Act to get American manufacturers to start producing electric heat pumps in quantity, so we can ship them to Europe where they can be installed in time to dramatically lessen Putin’s power”.
A sobering report published today by a number of NGOs shows that since the 2015 Paris Agreement, significant amounts of investment have continued to flow from North America and Europe to fund fossil fuel projects in Africa. Not only is such finance not in line with climate commitments, but in countries such as Mozambique, this “gas rush is causing land grabs, destroyed livelihoods, human rights abuses, militarisation and conflict,” says Anabela Lemos, the director of the NGO JA! Justiça Ambiental.
While the focus today is on Russia, the lessons being learned from Putin’s invasion need to be applied much further afield. “Our dependence on fossil fuels has enabled dictators and warmongers around the world for decades,” comments Connolly.