The current global energy crisis reveals, once again, that Europe remains highly dependent on imported fossil-fuels. Experts argue that now, it is clear that the only way to secure Europe’s energy security is through rapid and ambitious decarbonisation.
In Ireland, Norway, France, and the United Kingdom, protesters voice displeasure at the near-doubling of fuel prices following the ongoing energy price shock from the tolling and blocking of traffic through the Strait of Hormuz. As people take to the streets and urge action to protect citizens against rapidly rising energy costs, Europe reels from the consequences of its dependency on fossil fuel imports.
If this sounds familiar, it should.
The current energy crisis is only the latest revealing again how Europe’s energy dependency leaves it vulnerable to geopolitical instability.
As Europe’s political leadership rushes to find solutions to protect citizens’ pocketbooks in the short term, analysts argue that temporary bandaid measures must not come in the place of more comprehensive policies to transform Europe’s energy system.
And yet, while the current shock has hallmarks of previous crises, analysts Kate Mackenzie and Tim Sahay of the Polycrisis argue that this time is different. It’s the first time that renewable alternatives are both cheap and accessible, saying that the current crisis is accelerating our transition towards an “electric world order.”
Alex Chapman, senior economist at the New Economics Foundation (NEF), says that if there is one lesson to be taken from the current crisis it is “that we need to have an economy that is less dependent on fossil fuels and more self-reliant on domestic renewable energy sources.”
Leaders may seize the opportunity and frustration caused by the latest crisis to steer their economies away from fossil fuel dependency. But first, they will have to minimize the pain felt by workers from the price hikes.
Polycrisis Management
In the immediate response to the current crisis, Europe must implement measures to protect workers and purchasing power in the short-term, says Judith Kirton-Darling, General Secretary of IndustriALL-Europe, the trade union federation representing Europe’s industrial workers.
The European Trade Union Confederation (ETUC) estimates that the average annual energy bill for European consumers will rise by around €1800 Euros ($2100) unless immediate actions are taken. The ETUC also notes that EU consumer spending is plummeting, putting even greater pressure on the continent’s economy.
Kirton-Darling calls for the EU to implement a “SURE 2.0” employment protection program that was used during the COVID pandemic that would provide financial support to prevent layoffs in the short-term.
She also calls for the taxing of windfall profits for fossil-fuel companies – a measure that was taken during the outbreak of the invasion of Ukraine when fossil-fuel companies made record-breaking profits. Oil giants are already expected to make enormous windfall profits by the end of the year.
Policies that would protect the most vulnerable consumers from energy costs are important, argues Chapman, noting that the most impactful intervention during the energy hikes resulting from the invasion of Ukraine was a scheme that gave all households a specific amount of subsidised energy at a lower rate.
These policies will offer short-term relief. To escape the cycle of crisis and temporary relief, experts argue that Europe must wean itself from its reliance on imported fossil fuels and address the systemic vulnerabilities it results in.
Europe’s energy woes are longstanding and systematic
Europe’s energy prices have long been significantly higher than other countries like the United States and China. This contributes to a profound crisis in Europe’s key energy-intensive sectors, such as steel and chemicals, since international competitors can produce with far-lower energy costs.
“We have an essentially existential crisis in our foundation industries because of energy prices. We’ve already lost something like 100,000 jobs in European steel in recent years. We’ve lost something like 30,000 jobs in the chemical sector”, says Kirton-Darling.
These high prices are impacted by Europe’s dependency on fossil-fuel imports for its energy. According to Eurostat, the EU’s energy dependency rate is around 60% for all sources of energy; with the shares rising to 85% for natural gas and 97% for oil and petroleum products.
While much of this energy came from Russia before the invasion of Ukraine, the bloc shifted towards other countries for energy, increasing reliance on the United States and Qatar. Just four years after Putin’s invasion of Ukraine, Trump’s voluntary war against Iran jeopardizes this reliance, as the Trump administration willingly weaponizes Europe’s energy dependence. Switching suppliers likely prolonged, rather than resolved, Europe’s state of dependency.
The price that Europeans pay for energy is exposed to international gas market volatility in other ways as well.
European hourly wholesale electricity prices operate in a way where the price is set by the most expensive source of power in the energy mix at that time. This system of marginal pricing means that when renewables don’t produce enough electricity to meet demand, the market price often gets set by international gas and coal market prices.
Coupling the price of electricity to the most expensive source means that when international gas prices are volatile and rise sharply, and when renewables are insufficient to meet demand, wholesale electricity prices can rise dramatically.
A rapid uptake of renewables would mitigate this phenomenon, ensuring that they provide the bloc’s electricity for as much time as possible. An analysis by the policy thinktank Breugel argues that “scaling up non-fossil generation and thereby reducing the share of hours when gas sets the electricity price is the only structural approach to decouple Europe’s electricity prices from fossil prices and future shocks.”
We already see benefits for countries that have gone the furthest in terms of renewable energy capacity. Spain has doubled its renewable capacity since 2019 and as a result, the amount of time that electricity prices were set by fossil fuel prices has dropped by 75%.
As evidence mounts that greater investment in renewables can offer lower prices and protection against global instability, significant challenges remain stalling Europe’s capacity to install new capacity and expand investments.
Europe’s homegrown constraints
In the EU, rules dictating the amount of debt and deficit that countries can run in their public budgets mean that governments can be blocked by the EU from increasing public spending, potentially presenting a barrier that prevents governments from raising their investments in transforming their energy systems.
“At the moment, we have our hands tied behind our backs because we have 7 member states who are subject to fiscal restraints processes”, says Kirton-Darling, who calls for a suspension of these rules given the scale of the emergency at hand.
Chapman from the NEF also calls for greater coordination between central banks and governments: “central banks are inclined to act to reduce inflation by increasing interest rates, but increasing interest rates makes it harder to invest in the technologies that we need for our own security.”
He also argues for greater state-led initiatives that do not just depend on providing incentives for private capital investments: “we argue that states should be more confident to directly invest and own levers of production and to take some risks on developing new supply chains rather than paying exorbitant amounts of money to de-risk for the private sector.”
Beyond just increasing the amount of renewable capacity in Europe, the continent will have to invest in the infrastructure supporting it. Europe’s underinvested electricity grid is already struggling to handle new capacity. Moreover, the overall electrification of the EU economy has stalled at just over 20%. This means that much of the EU continues to be nearly as dependent on non-electric sources for final energy consumption, like gasoline for transportation, as nearly 20 years ago.
Nevertheless, we are already seeing decisions from Europe’s political leaders to move quickly to reduce reliance on fossil fuels. The UK government has recently mandated that all new homes be built with heat pumps and new plug-in solar capacity; France has doubled its public aid for electrification.
Whether or not Europe’s leadership can meet the demands of the current moment, it serves as a potent reminder that a rapid energy transition towards domestically produced renewable energy is not only driven by ecological concerns, but also a pathway towards security in the face of repeated geopolitical tumult.
Nevertheless, this drive also reflects a newfound geopolitical terrain on which Europe will have to find its footing.
New geopolitical terrain and China as the rising victor
The sharp rise in fossil fuel prices and repeated energy price shocks in recent years has already ignited action in countries beyond the EU, most notably within China.
Sahay and Mackenzie write in the Polycrisis that China is rapidly emerging as an “electrostate”, positioning itself as an alternative global hegemon to the US petrostate model. Through massive investments in the technologies necessary for decarbonization (Electrical Vehicles, Batteries, and Solar), it has made rapid progress in reducing its reliance on fossil fuels while developing cheaper and better technologies at a blistering pace.
Already, China produces four-fifths of the world’s solar panels and batteries and has considerable control over the supply chains necessary to produce renewables. China’s investments have resulted in the price of new renewable capacity installations falling sharply: now, the International Renewable Energy Agency (IRENA) estimates that new renewable installations are cheaper than new fossil-fuel power alternatives in 91% of cases.
Pakistan has emerged as an unlikely victor as it has shifted a meaningful share of its energy production to renewables in recent years and is estimated to have saved billions by replacing Liquid Natural Gas imports.
The war in Iran is accelerating China’s sale of renewable technologies and the Chinese electrical vehicle manufacturer BYD has seen a doubling of their orders in some Asian showrooms since the war began, presenting a significant risk to Europe’s historically important car manufacturing sector.
Concerns persist within Europe on whether these developments mean yet another shift of its energy dependencies on a new international partner. The EU manufacturers a shrinkingly small share of new global renewable capacity and will undoubtedly have to rely extensively on China for new capacity supplies.
Nevertheless, Alex Chapman says that this reflects a different kind of dependency than that on fossil fuels: “it isn’t necessarily the same kind of reliance. It isn’t an indefinite, permanent relationship the way that our reliance on fossil fuels is.”
In other words, geopolitical shocks like the blocking of the Strait of Hormuz would not result in suddenly wiping off already installed renewable capacity and doesn’t create a kind of persistent dependency the way that fossil fuels do. Fossil fuel extraction is geographically concentrated and prone to disruption; once a solar array is installed, no one can blockade the sun.
Nevertheless, these changing relations reflect a rapid reconfiguration of international geopolitical relations where we may be witnessing more profound transformations. Sahay and Mackenzie write that “increasingly, the US is not so much the gatekeeper of the world’s only energy system, but the paranoid guardian of an ailing oil order that is rapidly losing primacy. Clean energy alternatives are becoming more attractive, cheaper, and—most importantly—more reliable.”
Europe’s roots in the old order are deep, and the continent has shown itself reluctant to make significant moves that can adapt to new realities. Nevertheless, the European Union is working to boost its own investments in clean tech, partially through the Industrial Accelerator Act, which seeks to invest in modernizing and decarbonizing Europe’s ailing industries.
Kirton-Darlin says that IndustriALL-Europe is a “proponent of the act and measures to to boost European domestic production of key technologies”, while Chapman adds that countries will need to establish framework of the industries that are fundamentally essential to sustaining quality of life” and take the necessary steps to protect them.
At the same time, however, there continues to be a rising and persistent internal threat: that of the far-right political parties that continue to have steadfast presences in the European political arena and place anti-decarbonisation policies at the centre of their visions of the future.
Moreover, there is evidence that the perception of worsening economic conditions can drive voters to far-right parties, meaning that the current energy crisis may in fact further push Europe’s voters to parties that would implement the exact parties that may exacerbate the likelihood of crises in the future.
Chapman notes “this [crisis] is happening against the backdrop of a drive from the right wing across Europe to roll back on green progress, which, in the light of the way our reliance on fossil fuels has been exposed, seems just unfathomable, but that is the reality of where we are.”
While the fears of a revanchist fossil-fuel right are real, European leaders can put decarbonization in the driver’s seat by mitigating price shocks in the short term, and then actively pursuing a policy of renewable power generation and electrification. Twice already this decade, right-wing leaders have launched wars of choice that disrupted European access to fossil fuel energy and plunged the continent into crisis. Freedom from the whim of autocrats comes through lessening their power over power.
Wouter van de Klippe is a freelance journalist focused on labor and politics. He is committed to revitalizing Europe’s labor beat and writes on labor, economic, social, and environmental justice, and social welfare states.
