30 Mar 22

More oil or go green: two different paths out of the energy crisis

Will the war in Ukraine make the switch to renewables harder, or more urgent? Actually: both. As shown by how differently the United States and the European Union are reacting. The U.S. has the luxury to opt for more oil. The EU sees no other alternative but to double down on going green. 

A special report by Daniel Bland in North America and Frank Jacobs in Europe.

Western sanctions against Russia, a major producer of oil and gas, have seriously driven up the price of those commodities – and ultimately also the prices of petrol and diesel at the pump. 

Only two responses are possible. 

  • In the short run: find other, cheaper sources of oil and gas. 
  • In the longer run: break the dependency on hydrocarbons by speeding up the transition to renewable energy.

Of course, everybody wants to do both. But the difference in emphasis between the U.S. and the EU is striking. 

U.S. bans Russian energy…

On March 8, U.S. president Joe Biden announced a ban on the import of Russian oil and gas. This is relatively painless, since the U.S. did not heavily depend on those imports.

According to figures from the U.S. Energy Information Administration, the U.S. imported just under 200,000 barrels of Russian crude oil per day in 2021 – more than twice the volume of the previous year, but still only 8% of all the oil it imports, and only 2% of the country’s overall supply. 

In fact, since 2016 the U.S. has been a net exporter of petroleum products, and since 2021, it became the world’s largest producer. So, the White House called on America’s domestic oil and gas industry to increase its production to make up the difference. However, the industry is experiencing supply chain problems and labour shortages. Plus, the types of oil the U.S. produces don’t entirely overlap with the ones it consumes.

In other words: the shortfall in supply will have to come from beyond the U.S. as well. That’s why the U.S. reached out to Venezuela – its long-time foe in South America – with the aim of re-establishing diplomatic and economic relations. 

Venezuela is a major oil producer, and back in 2008, the U.S. imported more than a million barrels of Venezuelan oil per day. Due to U.S. sanctions, that has been reduced to zero – but given Biden’s outreach to Venezuela, that could soon change. 

… but Europe does not

Europe’s dependency on Russian oil and gas is much greater than America’s, and as a result, it’s an addiction that is proving much harder to break – for both parties. 

On average, about 20% of Europe’s oil and gas comes from Russia. Germany is especially vulnerable. Before the war, it imported about 33% of its oil, 55% of its gas and 45% if its coal from Russia. The Germans now want to halve their imports of Russian oil by this summer and completely stop the import or Russian coal in the second half of this year. To do so, they – and other European states, with similar problems and ambitions – must quickly broaden their energy supply base. For various reasons, entirely ending Germany’s dependency on Russian gas is more complicated, and will take more time: mid-2024.

At a recent summit, the EU as a whole determined that it would reduce its imports of Russian gas by two-thirds by the end of this year. The UK, for its part, depends on Russia for only 5% of its gas supplies, and will stop importing Russian energy by the end of this year. 

Meanwhile, Russian oil and gas continues to flow westward, because it also benefits Moscow: Russia earns about $1 billion a day from its energy exports. In fact, even Ukraine continues to collect transit fees from Russia, for the gas that flows to Western Europe in pipelines that cross its territory.

EU leaders have agreed on a comprehensive plan to phase out Russian energy imports, but that process will take years to complete. For replacement, Europe is looking towards countries with large strategic reserves of oil and gas, including Qatar, Canada and the U.S. – which has already pledged to ship an extra 15 billion cubic metres of liquefied natural gas (LNG) to Europe by the end of this year, and increase that amount to 50 billion cubic metres per year until at least 2030. 

The Ukraine war has highlighted both the price of hydrocarbons and the precariousness of sourcing these forms of energy. No wonder then that it has provided a boost to the pre-existing trend towards sustainable energy and, in terms of mobility, electric vehicles. 

Clean energy sources

However, that trend now seems to be pursued most determinedly in Europe, which unlike the U.S. cannot rely on huge domestic reserves of oil or gas. 

Speaking on CNN, U.S. Energy secretary Jennifer Granholm admitted as much: “Europe is much more reliant on Russia when it comes to oil and gas. However, the Europeans are looking quite a bit toward clean energy sources, and the U.S. should do the same,” she said. “The U.S. needs to step on the accelerator toward clean energy, something that it has already started to do.”

The Biden administration has set ambitious sustainability targets, including:

  • buying only zero-emission light duty vehicles for government fleets from 2027,
  • halving overall emissions by 2030, 
  • increasing the market share of new zero-emission vehicles to 50% by 2030 and 100% by 2035, and 
  • decarbonising its power sector by 2035. 

From a European perspective, dependence on Russian energy is a strategic flaw that must be rectified as soon as possible. And not just by frantically seeking alternative supplies, also by speeding up the transition to sustainable energy.

The cornerstone of the EU’s policy in this matter is the European Green Deal, which aims at a net 55% reduction of emissions by 2030, and at climate neutrality by 2050. If anything, the war in Ukraine has given these goals an added urgency. Some consequences: 

  • In the short run, Europe has no choice but to rely more heavily on gas, coal and nuclear to make up for the energy shortfall. In the medium and long term, however, the alternative – energy diversification as called for in the Green Deal – must be brought forward.
  • Europe will place a stronger emphasis on energy saving and energy efficiency. This implies public financial support for such measures as installing insulation and heat pumps, fitting solar panels, and electrifying heating; and more initiatives on efficient energy storage and management. 
  • To protect its citizens and corporates from excessive energy bills, European countries are imposing price ceilings, reducing tax rates and/or providing cash subsidies. Energy companies may be taxed to finance these extra expenses – which must be only temporary, so as not to undermine the price incentive of decarbonisation.  
  • As already provided in the Green Deal, support for the development of climate-neutral technologies (including e-fuels, green hydrogen and other more sustainable alternatives). 

In short: while emission and sustainability targets may suffer in the short run, Europe is determined to make up for lost time and speed up its transition to sustainable energy sources even more. If it succeeds, the EU will have offered at template to the U.S. – and others around the world – for accelerating its way out of the current energy crisis. 

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