The OECD has estimated that a decline of 20% in imported energy inputs has the potential to reduce European gross output by over one percentage point, with large differences across countries.
A sudden reduction in Russian energy exports could be highly disruptive for European countries. Emissions are likely to keep rising throughout 2022 as Russia is now cutting capacity on the Nord Stream 1 pipeline, one of the main conduits for Russian gas to Europe.Īmid concerns over further gas supply cuts before winter, Germany and Austria have recently announced they are planning to reopen mothballed coal plants for electricity generation. In March, emissions from the EU power sector were already up more than 20% year-on-year. The first key evidence is that emissions from the EU’s power sector have climbed sharply since the start of the invasion, signalling that there has been a partial switch back to coal as a source of electricity (Chart 1). While these measures are necessary to mitigate the impact of climbing gas prices, they could jeopardise EU’s lower emission path in the short term. Governments are making efforts to ensure stable supplies of energy for European households and businesses. On the other hand, however, higher gas prices could threat energy affordability, favouring a coal comeback. On one hand the war and the subsequent energy sanctions against Russia could speed up that direction of travel. That is the role played by carbon pricing. Higher fossil fuel prices are key to reducing high-carbon energy consumption and incentivising the net-zero transition. Food and energy prices have climbed sharply with the invasion of Ukraine and have remained elevated since then, pushing the global economy towards a more stagflationary world as recently discussed in our latest Economic and Strategy Viewpoint.Ĭan Europe achieve its climate neutrality target, secure energy affordability, ensure security of energy supply, all this while decoupling from Russian energy and fighting high inflation? The war is aggravating inflationary pressures, disrupting production and trade of several commodities particularly energy, fertilizers, and grains, where Russia and Ukraine are key exporters. The task is made harder still given the bloc is already battling elevated inflation caused by bottlenecks as economies have re-opened. While the plan can fast-track the clean energy transition and fight the climate crisis, this is no easy task. Reducing energy consumption and improving energy efficiency will also be important, given the tight supply and current energy infrastructure constraints. The EU is seeking to diversify its gas supplies, while speeding up the introduction of renewables. A sustained policy effort across multiple sectors will be needed. Phasing out Russian fossil fuelsįollowing the Russian invasion of Ukraine, the EU has committed to phasing out its dependency on Russian fossil fuels. Austria and Poland imported more than 80% of gas from Russia in 2021, Germany more than 50%, while for France and Spain the share was less than 8%.
Countries in the EU have different degrees of reliance on Russia for their natural gas supply.
The EU imports 90% of its gas consumption, with Russia, its largest gas supplier, providing around 45% of those imports in 2021. Coal can be produced domestically, but natural gas is mainly imported. However, this shift has made the EU’s energy mix much more dependant on international trade dynamics and geopolitical relationships. For example, the number of EU member states producing anthracite, the purest form of coal with the highest carbon content, fell from 12 in 1990 to just two in 2020, being Poland and the Czech Republic. To achieve this they have moved away from coal, the most carbon-intensive fuel, and increased their reliance on natural gas in recent years. Many European countries have sought to reduce carbon emissions and limit the effects of climate change.
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