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MAR 2, 2022

The world has gotten a lot darker since we were last in your inboxes.

Our lead story today underscores the need for a clean energy transition considering Russia’s invasion of Ukraine.

It’s written by Cipher’s new correspondent, Anca Gurzu, who’s based in Brussels. Anca has spent eight years covering energy and climate change, five with Politico Europe. She most recently completed a journalism fellowship at the University of Chicago.

She will cover all things Europe for us. She couldn’t have joined at a more important time, and we’re thrilled to have her on the team. Please say hi and send her tips: anca@ciphernews.com or on Twitter @AncaGurzu.

LATEST NEWS
EU’s pipeline politics shows urgency of green energy transition
BY: ANCA GURZU

Russia’s invasion of Ukraine has gotten the European Union scrambling for both political solutions and alternative sources of energy to replace the fossil fuel it’s hugely reliant on: natural gas.

The crisis is accentuating a fraught, decades-long energy dependency on Russia, which provides roughly 40% of the EU’s gas needs. Most of it comes via pipeline through Ukraine, which transits the most gas in the world, according to the International Energy Agency.

This energy security struggle brings an urgent warning, European policymakers tell Cipher: the EU needs to accelerate its green energy transformation.

The war against Ukraine is not only a watershed moment for the security architecture in Europe, but for our energy system as well,” Energy Commissioner Kadri Simson said Monday following an emergency meeting of EU energy ministers. “It has made our vulnerability painfully clear. We cannot let any third country destabilize our energy markets or influence our energy choices.”

An emerging question is whether the EU will use this crisis as a springboard toward cleaner energy or get hooked on gas from elsewhere.

The EU is seen as a leader on the international stage in terms of its climate ambition.

Its €1 trillion ($1.12 trillion) European Green Deal, proposed at the end of 2019 right before the pandemic, is designed to boost offshore wind projects, green hydrogen, energy efficiency, batteries and electrification. This jumbo package is meant to help the EU reach net-zero greenhouse gas emissions by 2050 and become the first climate-neutral continent.

But some European policymakers have also increasingly seen natural gas as a key transition fuel, and the current geopolitical crisis is a sign of how challenging this transformation could be.

“The European Union and all its member states should realize that in addition to an urgent climate crisis, we need to also increase our energy independence due to the increasing comeback of geopolitical actions,” Ville Niinistö, a Finnish member of the European Parliament (MEP) from the Greens group, told Cipher. “The speed of the transition and the coherence of our actions need to increase.”

The crisis is coming alongside skyrocketing energy prices on the continent, which were driven initially largely by global supply and demand issues and are now being exacerbated by Russia’s invasion.

The European Commission has delayed until at least next week new guidance on how to navigate high energy prices and boost the share of renewables. The announcement, initially expected today, was pushed back to better tackle the bloc’s Russian gas dependency.

It’s not the first time the EU has had a supply scare.

Gas price disputes between Russia and Ukraine have lessened European deliveries twice since 2000, which has compelled the bloc to try to find ways to wean itself from its neighbor’s energy—albeit unsuccessfully.

The Energy Union initiative, a 2015 project of the European Commission that had energy security and Russian gas dependency at the top of the list, is a testament of the challenge. The initiative had limited progress. It helped the bloc diversify some routes and suppliers but left it no better off than it was seven years ago vis-à-vis Russia.

In fact, the EU has increased its dependence on Russian gas over the last decade. (See more details with the below chart.)

“The long-term answer to the short-term challenges is to expand Europe’s renewable energy sources as quickly as possible and ultimately become self-sufficient with energy,” said Morten Petersen, a Danish MEP from the liberal Renew Europe group and vice chair of the Parliament’s Industry, Research and Energy Committee. “The technologies are well known, and investors are ready to scale up production.” What Europe lacks, he added, is enough infrastructure linking EU countries to ensure clean energy can flow freely across borders. 

For now, gas is here to stay.

Germany, which gets 50% of its gas from Russia, had planned to double its direct gas route from the country through the contentious Nord Stream 2 pipeline. German leaders put that on ice shortly before Moscow’s invasion of Ukraine.

In response, Berlin announced over the weekend it will fast track the construction of two new terminals to import liquefied natural gas from other countries—a move that left environmentalists disgruntled. The government also announced this week plans for a faster deployment of green energy.

“The current geopolitical context forces us not only to continue [to] further the diversification of routes and sources of gas supply to the EU but also to scale up our production of the renewables,” said Jerzy Buzek, a Polish MEP and former Polish prime minister who is also the lead negotiator on one of two key legislative proposals meant to decarbonize the gas market.

In the long term, he added, the role of gas in lower-emission applications, such as some forms of hydrogen and gas derived from organic material, will grow.

A European Commission assessment shows that these cleaner types of gas are set to replace about two-thirds of fossil natural gas by 2050, based on climate and energy policies outlined in the European Green Deal.

Although the EU will have to look for other gas suppliers in the short term, Energy Commissioner Simson said that “ultimately, the best and the only lasting solution is the Green Dealboosting renewables and energy efficiency as fast as technically possible.”

Amy’s Lunchtime Reads
and Hot Takes

Biden mentions climate change just once during the State of the Union while touting a plan to create clean-energy jobs Business Insider
My take: I was surprised by the lack of expansive comments on energy and climate change, though I'm not surprised that to the extent President Biden did mention the topic, it was in the context of making life more affordable for Americans. That reflects both Biden's centrist sentiment as president and the zeitgeist of this particular moment in history: the painfully acute tragedies and crises unfolding in response to Russia's invasion of Ukraine.

The new energy shock: Putin, Ukraine and the global economy
Financial Times (paywall)
My take: Key quote at the end bodes poorly for climate action: “Regime change appears to be crowding out climate change, and for good reason,” says Kevin Book, managing director at Washington consultancy ClearView Energy Partners. “The world is warming slowly, but Ukraine is boiling over.”

The Most Immediate Nuclear Danger in Ukraine Isn’t Chernobyl Carnegie Endowment for International Peace
My take: Key line: “To put it simply, nuclear power plants are not designed for war zones.”

Clean-Energy Stocks Surge as War Spurs Push Away From RussiaBloomberg (paywall)
My take: This trend is a silver lining in an otherwise dark world. Unlike when Russia took over Crimea in 2014, clean-energy stocks are rising because the industry has grown to a point where investors are betting Europe will be able to make at least some additional shifts to clean energy in response to this crisis.

Could Russian sanctions hobble U.S. clean energy push?POLITICO
My take: This raises an interesting point about Russia’s dominance in some metals critical to clean energy technologies, but surely relying on liquid commodities that can be stopped on a dime is worse than this type of dependence.

E.U. will unveil a strategy to break free from Russian gas, after decades of dependenceThe Washington Post
My take: This story is a little outdated in our fast-moving news cycle, but I’m mentioning it because it includes a fascinating—and prescient—anecdote about how President Ronald Reagan in 1981 opposed the construction of an early gas pipeline from the then-Soviet Union to Europe, arguing it would make Europe too dependent upon the country. He even approved a CIA effort “to blow up part of the pipeline, which ended in only a modest construction delay.”

More of what I'm reading:
  • Prices soar as Russian supply concerns mount Reuters
  • Exxon Mobil says it plans to leave its last remaining Russian project — The New York Times
  • Hawaii relies on Russian oil — but clean energy could change that — Canary Media
  • Airbus to test hydrogen-powered engine on A380 superjumbo Financial Times (paywall)
  • OPEC chief, African ministers defend oil and gas investments Reuters
  • $4.4B wind auction broke records. Here's why it matters. — E&E News (paywall)
DATA DIVE
EU dependence on Russian natural gas has deepened in recent years
Source: U.S. Energy Information Administration • Europe includes the 27 members of the European Union plus the United Kingdom.

The European Union got nearly 44% of its natural gas import needs from Russia in 2020, up from about 26% in 2010, according to Eurostat data. That number stood at 46.8% in the first half of last year.

As Europe decreased its own production of natural gas, its reliance on Russian gas increased, as the above chart from the U.S. Energy Information Administration (EIA) shows.

This reflects the EU’s decision to use natural gas as a transition fuel on its path to cleaner energy, despite cutting back its own production.

The chart above shows a slightly lower percentage compared to Eurostat due to seasonal changes, different methodologies and because the EIA includes the United Kingdom, which is a major natural gas consumer but doesn’t import Russian gas.

Europe has also been increasing its imports of liquefied natural gas from the United States and Qatar, which helps drive competition with Russian gas.

The EU’s dependence on Russia doesn’t stop at gas. It also imports half of its hard coal (a type of coal that has the highest energy value) from Russia. It’s also the EU’s top import country for crude oil, representing almost 26% of total imports.

AND FINALLY...
Curbside charging
Cipher’s new correspondent, Anca Gurzu, snapped this photo of a curbside electric-vehicle charging station in Brussels, where she is based. Belgium’s electricity is a mix largely of nuclear power and natural gas, but wind has increased sharply in recent years .
Each week, we feature a photo that is somehow related to energy, the thing we all need but don’t notice until it’s expensive or gone. Email your ideas and photos to news@ciphernews.com.
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