Newsletter: Europe Express
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The EU’s “green deal” is about more than saving the planet. It is a blow to hegemony. European leaders believe that the decarbonisation agenda will impose fundamental reforms on global economies and want Europe to be at the forefront of this technological and political revolution.
The EU’s desire to be the global green champion reflects that it already is, in many ways. Green parties are more present in Europe than elsewhere. They have come to power or won the battle of ideas as other parties have adopted their agenda. Europe creates its prosperity with relatively low emissions. Its cities are pioneer urban economies that rely less and less on the car.
But Europe’s grand ambitions also mean that it is the first to face headwinds, such as the political fallout from the current surge in energy prices. The looming prospect of citizens unable to keep the lights on is any government’s nightmare. But for Europe, it also threatens a long-term political agenda around which many others – including the EU’s revolutionary recovery common fund – are being built.
Europe’s decarbonization agenda requires making the use of fossil fuels more expensive. It was always going to be a tough sell. Now that the prices are suddenly higher, it is going to be even more difficult. If European leaders can keep a cool head in the current crisis – it is, after all, the continent that spawned the yellow vests – will show whether their aspiration for global green hegemony has the power to remain.
No politician can afford to overlook a real energy shortage among his constituents. But they must not succumb to the temptation to postpone climate policies that could make energy more expensive. Instead, they should use the crisis to galvanize green politics – starting by admitting four ways that today’s soaring bills reflect unfinished business.
First, these spikes occur after a long period of falling energy prices. Europeans took advantage of a half-decade in which pre-tax market prices for natural gas were lower than before the 2008-09 recession, adjusted for inflation. Electricity prices have evolved in much the same way. While energy taxes have increased over this period, total price increases have been manageable, especially for businesses.
Perhaps this is little consolation for those who are now facing high bills. But the longer term consequence has been to reduce the incentive to improve energy efficiency. Had governments committed to increasing energy taxes earlier, households and businesses would now be in a better position to cope with short-term spikes.
Second, a unified energy market remains more of an aspiration than a reality. Households and businesses pay far more for gas in the most expensive EU country than the cheapest, even before tax differences are taken into account. It is the same for electricity. In a true single market, prices should differ only by transport or transmission costs (which policy interventions and public investments should aim to reduce). In such a market, local price fluctuations would be much less violent.
Third, Europe is insufficiently diversified in energy imports. This may seem to legitimize Germany’s acceptance of the Russian Nord Stream 2 pipeline. But it does underscore the need for more investment in alternative sources, such as gasification capacity to improve access to global natural gas markets. liquefied, or renewable energy projects across the Mediterranean.
Fourth, the fundamental question of what the EU’s energy mix should be remains unanswered. In the medium term, the question is what role gas should play as a stepping stone away from dirtier coal and oil. In the long run, the question is to know what replaces it. These are not independent considerations: investments in natural gas have a lifespan longer than ten years, it can presumably act as a source of transitional energy.
Overall, the EU’s long-term energy strategies go in the right direction but are not strong enough. Tough carbon pricing will boost energy efficiency. Greater investment in energy trade will ease shocks in the short term. The block’s increased focus on hydrogen could allow longer lifetimes for new natural gas investments with policies to shift gas production from transitional energy to a ‘blue’ hydrogen source. “. It could even give credence to Berlin’s idea of compensating Ukraine for the geostrategic risk of Nord Stream 2 by making the country an exporter of hydrogen to the EU.
These are political challenges of diabolical complexity. But the most important task is that of the art of governing: persuading voters that doubling decarbonization – with its implications for gas prices – is the best way to avoid similar crises in the future.