By Emily Garber
The European Union has been struggling with its reliance on foreign imports of energy, in light of their low domestic production yet high consumption rate. According to the European Energy Commission, nearly 53 percent of the EU’s total energy use depends on external sources of power. Yet, the topic has only recently resurfaced in mainstream media—with experts debating gas prices, carbon emissions, Western sanctions, and Russian retaliation. Simply put, the future of the EU is dependent on the tough policy choices it has to make now.
In January, the European Commission passed an extended climate and energy policy bill, in hopes of continuing its successful sustainability and efficiency momentum. In order to “ensure regulatory certainty for investors and a coordinated approach among Member States,” Günther Oettinger, Commissioner for Energy, presented the 2030 policy framework, surpassing the current 2020 legislative aims. Many Greens and climate-change activists protested outside the Commission's convening, arguing that the bill was not a coordinated effort, nor as ambitious, clear, or binding as it should be.
Energy security, however, is considerably more divisive than energy sustainability. To put it into context, the EU28 imports about 30 percent of its natural gas from Russia, and while Norway and Algeria are also major gas exporters to the EU, they have not proven themselves as volatile a trading partner as Russia has.
Trade dependency in international relations is often hailed as a major deterrent to conflict. Given the tensions with its neighbors, the EU is rightfully concerned to be so reliant on Russian goods. The successful yet violent Euromaidan protests in Ukraine ushered in both a pro-EU sentiment and newly elected President Poroshenko, but still did not deter Putin-led Russia from erratic and even, as Western leaders have said, “illegal” actions, like the Crimean annexation in March.
The hostility between Ukraine and Russia relates specifically to European energy politics because about half of the EU’s imported Russian gas passes through Ukraine. Ukrainian-Russian “pipeline diplomacy” has been turbulent in the past, marred by temporary shut-offs in supply, price shocks, and questionable security of gas delivery. Following the Crimean crisis, annexation, and subsequent unrest and war in pro-Russian areas of Ukraine, the EU had to make the next round of tough choices on energy policy, imposing international sanctions on Russian energy, military, and financial sectors.
With an expected $100 billion in capital flight, these coordinated Western sanctions will hurt Russia across the board, especially considering that the EU represents 80 percent of cumulative foreign investments in Russia. While many know of the single side of EU-supply dependence, European-Russian gas relations are more accurately a complex co-dependent or interdependent trade relation. There is a lot of truth to The Economist report published early this spring that noted, “In the end, the Kremlin needs its European customers at least as much as they need Russian imports.” In 2012, oil and natural gas exports to Europe constituted 70 percent of Russia’s export revenues, 52 percent of their federal budget, and 40 percent of Gazprom’s revenue, making Europe a valued costumer for the country.
In order to enforce the new sanctions, the West must first attempt to detangle this complex trade relation and all of its moving, multinational parts. The EU/US sanctions include blocking the importation of goods, which include those technologies that aid in oil extraction expansion. Rosneft, Russia’s leading oil company, is a recipient of these technologies, particularly as Rosneft has been working with ExxonMobil in pursuit of greater access to Arctic drilling and other deep-sea shale basins. Additionally, BP, formerly British Petroleum, holds an almost 20 percent stake in Rosneft.
Europe's next tough decisions must reconcile this complicated reality. Even if the EU stops getting its energy from state-owned Gazprom or shareholding ventures like Rosneft, Russia will remain a worrisome trading partner. Europe's energy reliance problems all stem from the fact that Europe does not produce as much energy domestically as it consumes. The energy it does produce varies greatly from state to state, all depending on political leadership, geographic features, and constituency demands, but results overall in contradictory intra-EU initiatives.
For example, initiatives like Germany’s denuclearization program, introduced legislatively after the 2011 Fukushima disaster, are well intentioned, supported nationally, and necessary for risk avoidance. Unfortunately, the policy initiative also means reverting back to using dirtier coal, an increased reliance on imported gas, and paying more for the weakened electricity supply.
Since Germany consumes 19 percent of the EU28’s total energy, that’s a lot more of everything. France, on the other hand, embraces its nuclear power use, consuming 15.4 percent of the EU28 total, and is the world’s largest net exporter of electricity. Like Germany, France is also lop-sided in their general energy mix. It is shocking, yet demonstrative of Europe's larger energy discordance, how even similarly sized Western European counterpart states can have such radically different energy policies.
Ultimately, what makes a state or union of states stand above the rest is how they choose to make tough decisions. After closely surveying the state of European energy policy, it is clear that Europe needs to work together for a more balanced and synchronized approach of working across borders throughout the region so that one state’s surplus can aid another’s deficiency.
While the energy problems facing Europe are clear, the solutions are not. So far, the EU has lacked a sense of consequence, consensus, and cohesion in creating its energy policies. Policymakers need to work in conjunction as systems-thinkers and not just quick-fixers. I recommend that the EU continue to press for international dialogue and legislation addressing environmental concerns, as well as provide additional investment for innovative methods and infrastructure for energy efficiency.
That being said, the EU needs to address its Member States’ uneven oil and gas dependencies, large price differentials, and contradictory national-level policies. Greater EU-wide internal market harmonization and increased domestic energy production will help these issues, and can additionally offset the disruptiveness of pipeline transit problems. The EU’s lack of global competitiveness on the industrial level, due in large part to the EU’s more complex regulatory framework and more collective legal conceptions of property and mineral rights, will take longer to ameliorate, but addressing the EU’s internal demand and production is a good start to a more competitive future.
The EU can only pursue these strategic options by weighing their short-, medium- and long-term needs against their same security and sustainability priorities. The time it will take such policy implementations to take effect is a determining factor in this decision-making process and is also of the essence as winter approaches.
The energy problems the EU is facing, from the lack of security and stability to the lack of cohesion and competition, are ones that every state cannot afford to ignore. As top economist for the International Energy Agency, Fatih Birol reminds us, ”The issue [now] is to convince the world that the future is as important as the present.”
The longer we wait for European policymakers and heads of state to make the necessary tough decisions in a better and more balanced way, the hazier Europe's energy supply solutions become.
Emily Garber was a research assistant for the World Policy Institute focusing her work on European energy policy.