Putin’s war has created an electroshock for Europe because it depends on fossil fuel imports for 60% of its energy, one-third of which comes from Russia.  Organically evolving European Union (EU) plans target 2027 for a massive and rapid transition to a green economy and energy independence.  Renewables, electric vehicles, clean technologies and energy efficiency will all play major roles in the creation of fast-forward paradigms for global emulation.  For the immediate, by the end of 2022, EU plans entail cutting Russia gas imports by two-thirds, substitution fuel sources plus ramping up renewables and energy efficiency.  These EU plans will be devastating for the Russian economy.  Russia needs European oil and gas revenues more than Europe needs these fuels.

Putin’s vulnerability: European Union poises for a green transition

Four-fifths of the world imports fossil fuels.

Russia accounts for 10% of global fossil fuel supplies.

More than 30% of Russia’s GDP and 40% of its budget depends on fossil fuel exports.

According to the International Energy Agency, Russia is the world’s largest oil exporter, as well as the primary source of European Union (EU) gas supplies.

For Europe, with the higher fuel prices sparked by the Russian invasion of Ukraine, now more than ever, emergency responses for energy independence and a transition to a green economy, are critical.  The strategies for both are the same.

EU climate plans before the Putin’s war

In 2019, Europe depended on fossil fuel imports for 60% of its energy consumption, with one-third of these imports coming from Russia.  In 2021, Europe purchased US$110 billion worth of Russian fossil fuels.  In 2022, Europe was spending US$400 million/day for Russian gas and US$700 million/day for Russian oil.  During March 2022 alone, Europe paid US$24 billion for Russian oil and gas.

Specifically, pre-war EU imports of Russian fossil fuels accounted for 40% of its gas, 27% of oil and 46% of coal.

Prior to Putin’s war, the EU had been working on a plan to reduce emissions by 55%, based on 1990 levels.  This plan encompassed reducing the reliance on fossil fuel imports.

On July 14, 2021, the European Commission revealed details on its proposed climate package, European Green Deal Investment Plan (EGDIP), aka Fit for 55, the first salvo, pulling together US$1.2 trillion over 2021 to 2027, at a cost of US$386 billion annually.

The Fit for 55 paradigm would have decreased European gas consumption by 30%.

To achieve its objectives, Europe would have to nearly triple solar and wind capacity by 2030.

The electroshock

With the advent of the war, organically emerging EU draconian plans are hurriedly being developed “in flight” to eliminate Russia fossil fuel imports before the end of the decade, by radically advancing the transition to a green economy.

For the immediate future, by the end of 2022, substitutes will be identified for Russian fossil fuel imports. 

EU setting war-related new targets

On March 8, 2022, the European Commission presented a plan to eliminate Russian fossil fuel imports by 2030.  Two days afterward, at a Summit of EU leaders in Versailles, the target was changed to 2027.

As of April 2022, the Commission’s evolving proposals have a timeline for finalization in mid-May 2022.

The plan to-date proposes 900 gigawatts (GW) of new solar and wind capacity by 2030, 30 million heat pumps and increasing green hydrogen by a factor of 4.  That’s a colossal leap from 2021.

Last year, EU solar capacity additions amounted to 25.9 GW for a total installed capacity of 165 GW.

EU 2021 wind energy additions came to 11 GW.  Europe, as a whole added 17.4 GW in 2021, bringing the total capacity for the year to 236 GW.

This is only the beginning.

Feasible for the EU, devastating for Russia

During the decade before the war, Europe’s fossil fuel consumption was already declining by 1%/year.

The emerging on-the-run EU plan is definitely feasible before 2030 with the combination of solar, wind, energy efficiency, electric vehicles and the full range of other clean techs.

The existing proportions of the clean tech in many European countries are higher than in China, though in absolute terms, China is ahead on quantity.

The higher costs of fossil fuels stemming from the war increases an existing price advantage of a transition to renewables, while concurrently favouring electric vehicle (EV) plus clean tech solutions and innovations at-large.

In 2021, plug-ins represented 17% of the European light-duty vehicle market share, 10% were battery electric vehicle (BEV) versions.

Increasing the pace Europeans acquiring EVs is another key to independence from Russia since road transportation accounts for 50% of EU oil imports.   Up to half of Russian oil imports to Europe can be cut by 2023 and almost all of such imports by 2025, though fuel savings and accelerating the transition to EVs.

Prior to the spike in fuel prices, it was predicted that the European EV portion of new vehicle sales could reach 50% by 2025. – Current trends in China may lead to BEVs accounting for up to 100% of China sales by 2025.

Indeed, the EV-related revolution in the global automobile sector is due to a combination of stringent vehicle emission regulations in both the EU and China and automakers having to compete with each other in all critical markets.

More aggressive EU vehicle emission standards are presently being reviewed by the European Parliament that could deprive Putin of US$11 billion/year.

While Russia can readily find alternative markets for the small volume of exports affected by the U.S. embargo on Russian oil, Russia would be hard pressed to find other markets equivalent to the volume of oil and gas exports to the EU.

On Putin’s attempt to suggest Europe is vulnerable by cutting off gas supplies to Poland and Bulgaria, this is only political theatre.

Since Poland had already planned to terminate imports of all Russian oil, gas and coal by the end of 2022, Putin’s cutting off gas to Poland only speeds up the Poland’s intentions.   Poland’s infrastructure investments such as the Baltic Pipe, or other connections with EU countries, make it possible for Poland to immediately substitute Russian gas.

Bulgaria too has plans in place for an alternative gas supplier, via the upcoming completion of the Gas Interconnector Greece-Bulgaria.

Bluntly, Putin needs the US$1 billion/day from oil and gas exports to Europe to finance his war.

The International Energy Agency conclusion is that Putin needs oil and gas revenues from Europe, more than Europe needs these fuels.

German full-tilt response to the war

Germany is currently spending US$220 million per day on Russian oil and gas imports.

In 2021, Germany spent US$23.6 billion on Russian oil imports.

German dependence Russian fossil fuel imports comprises 50% of its gas and coal, plus a third of its oil.  And gas represents 20% of German electrical power production sources.

In April 2022, the German government approved wide ranging legislation, the “Easter Package,” to advance energy independence via a green economy.  The plan calls for 80% renewables by 2030, 100% by 2035, up from the current level of 40%.

However, because Germany, in the wake of the 2011 Japan’s Fukushima disaster, decided to close all 17 of its nuclear power facilities of that time by the end of 2022, there are additional challenges.  This ill side effect to-date has been to increase German dependence on Russian methane.  There are currently 3 nuclear plants still in operation.

For onshore wind, the “Easter Package” requires annual onshore wind installations of 10 GW/year, a steep climb from 1.9 GW in 2021, to reach 115 GW by 2030.  The package entails reserving 2% of Germany’s surface area for wind.

Solar would soar to 22 GW/year of new capacity, spiked up from 5.3 GW in 2021.  The goal to 215 GW installed by 2030.  This includes rooftop arrays.

For offshore wind, the target is 30 GW by 2030.

The “Easter Package” covers community power as well, 18 megawatts (MW) of wind and 6 MW of solar, exempt from tenders.

Tendering processes will be simplified and will include green hydrogen.

Germany’s response to the Russia assault on Ukraine may set a benchmark for other EU members.

The U.K and the Netherlands likewise are working on plans to accelerate a shift to wind energy.

The short-term crisis plan, Europe by the end of 2022

The European Commission’s interim emerging plan includes cutting Russian gas imports by two-thirds, 101.5 billion litres, by the end of 2022; increasing gas imports from other countries by 60% of that reduction; augmenting renewables power generation plus conservation measures to cover another 33%;  and prolonging the life of coal and nuclear power plants that were slated for shutdowns.

On April 8, 2022, the European Council (heads of national governments) approved a ban on imports of Russian coal and other solid fuels; Russian vessels entering EU ports; and Russian and Belarusian road transport from entering the EU.  This adds to previously issued sanctions on, among other things, the Russian energy sector, covering new and existing investments.

The most spectacular European response to Putin’s war has got to be the February 22, 2022, German cancellation of the certification of Nord Stream 2.  This US$11 billion pipeline was intended to transport Russian gas to northern Germany.  In parallel, the Biden administration placed sanctions on Nord Stream AG 2, the Russian-owned, Swiss-based parent company of the pipeline, now bankrupt.

The flipside to cancelling Nord Steam 2 is Germany’s interim plan is to import liquefied natural gas from the U.S. and Qatar, while concurrently, along with Austria, rationing gas consumption.

The short term agenda also includes colossal energy efficiency and conservation goals and increasing coal-fired plant production.  Perhaps, the coal boost may contribute to higher prices for carbon credits in the European Trading System.

The U.K. plan, as of March 2022, heads in the same direction with plans to eliminate imports of Russian gas and reduce imports of Russian oil by the end of 2022.

Conclusion

Necessity is the mother of invention.

Europe’s revulsion of the Russian assault on Ukraine, meshed with Europe’s disastrous dependence on Russian fossil fuels, is the electroshock for Europe to engage in a fast-forward mode.  Since European emergency responses for both energy independence and climate challenges are the same, Europe is expeditiously building new green economy paradigms.  These paradigms can be emulated elsewhere.

The mid-May 2022 European Commission report will provide more detailed proposals.  More work in progress in action can be expected throughout 2022.  This will include European nation-specific plans.

Europe is beginning to set itself apart as best positioned to react to the latest report of the Intergovernmental Panel on Climate Change (IPCC).  The IPCC bottom line is that global emissions must peak by 2025 and decline by 43% by 2030.  Methane greenhouse gases must drop by one-third.

Coupled with increasing climate actions of governments around the globe, it appears public sector activity has finally touched nerves in the oil and gas industry.   Worried about stranded assets, the windfalls from higher fuel prices have not resulted in the oil and gas industry significantly stepping up investments in new assets.

Stay tuned!

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