By Simone Tagliapietra, Georg Zachmann and Morgan Bazilian

Russia’s unprovoked invasion of Ukraine has pressed Europe to fundamentally rethink how it keeps its lights on and its industries powered. Steps that would have sounded crazy only a few weeks ago — burning more coal or scaling-up government intervention in energy markets — are now urgently needed to stop financing Vladimir Putin’s war.

The crisis has shown just how dependent Europe has allowed itself to become on Russian natural gas, oil, coal and even nuclear fuel, which makes the continent particularly vulnerable to any move by Russia to weaponize its energy dominance. Now, at long last, Europe has set about making a profound course correction.

But it will take time to accomplish, and Europe must be prepared if Russia retaliates by cutting off the continent’s gas supply. To bolster itself against such a shock, Europe should join with the United States, Canada and other major energy producers in a trans-Atlantic pact to assure that it has readily available energy alternatives.

This week, the European Union’s executive arm proposed a strategy to end the bloc’s reliance on Russian gas that could result in a substantial cut to imports this year. The E.U. would accomplish this by increasing imports of liquefied natural gas, deploying renewable energy more robustly, conserving energy and expanding the use of biogas and hydrogen. All of this on top of a more strategic use of natural gas reserves, with some purchased collectively by E.U member states through a joint procurement plan.

But Europe’s farewell to Russian gas will be a long goodbye; it will take most of the decade for the continent to wean itself from those supplies, which now account for more than 40 percent of its gas imports. So for now, Europe will keep buying from Russia as the war in Ukraine expands. And if energy prices continue to rise, the amount of money Europe pays to Russia each day will keep increasing, and could average $850 million per day in the first half of 2022, according to our calculations.

As Western sanctions target Russia’s financial sector and its central bank, those exports now represent an even more precious source of income for Russia — and for Vladimir Putin’s war. Canada and the United States already have stepped forward to ban imports of Russian oil and natural gas — this is less significant than a European import ban would be; U.S. and Canadian imports are comparatively low — and Britain has pledged to phase out oil imports from Russia by the end of the year, though gas imports would continue.

But should the daily brutalities in Ukraine continue or even accelerate, social and political pressures across Europe will mount to put an embargo on Russian energy — even if European governments are for now resisting. As Chancellor Olaf Scholz of Germany said, Russian supplies remain “essential” to the European economy for now.

Such an embargo would represent one of the most significant shocks in the history of energy markets; the natural gas market is already near a breaking point. It would also represent a major test for the European economy and society, risking endangering its “social peace,” as the German minister for economic affairs and climate action, Robert Habeck, said recently.

On top of the economic consequences of high oil prices, E.U. leaders also fear that while a Western embargo might initially target only Russian oil, Russia could retaliate by cutting natural gas supplies to Europe. Given the gravity of such a scenario, any punitive measures by the E.U. must be thoughtfully anticipated in collaboration with the United States, Canada and other partners. A trans-Atlantic energy pact should include actions on at least four fronts.

First, natural gas. Without Russian gas, the main challenge for Europe will be to refill its storage facilities ahead of next winter. This will require record imports of liquefied natural gas this spring and the summer. The United States, the largest liquefied natural gas exporter in the world as of this year, should help ensure that its exports go to Europe at the necessary volumes and at a reasonable cost. Because the U.S. gas market is competitive, and shipments go where the contract prices are best, the federal government may need to step in.

Second, oil. The United States and Europe should work together to help ensure that enough oil is delivered to the market to compensate for the lost Russian volumes. Because neither controls the world oil trade, this will require strong collaboration with Saudi Arabia, the United Arab Emirates and other OPEC producers. But not all OPEC countries will be keen on this approach.

Third, coal. To manage the next winter without Russian gas, Europe would have to reopen idled coal-fired power plants. This is politically very difficult for many of the E.U.’s member states, which have strong commitments to climate change goals. Still, from Italy to Germany, governments have already adopted emergency energy measures in the case of an interruption of Russian gas. One complicating issue is that Europe imports around 47 percent of its solid fuel — mainly coal — from Russia, and replacing that will be difficult; the supply of coal globally is tight and prices are at record highs.

Fourth, green energy and demand. The Ukraine crisis is a stark reminder to accelerate the clean energy transition in Europe and the United States. Measures to reduce energy consumption in Europe might be the quickest way to cut demand. Likewise, a wartime effort to improve energy efficiency in the United States could free up additional volumes of natural gas to export. Environmental emissions monitoring and regulations should be part of any increase in U.S. oil and gas exports as part of wartime production.

A trans-Atlantic pact between North America and Europe is essential if Europe is to free itself in the short term from its dependence on Russian energy. Such a pact could also build an important foundation for cooperation in clean energy innovation and deployment and reducing energy demand in the longer term — which would significantly enhance Europe’s energy security.

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Simone Tagliapietra is a senior fellow at Bruegel, a research institute on economics in Brussels, and an adjunct professor at the Catholic University of the Sacred Heart in Milan. Georg Zachmann is also a senior fellow at Bruegel, a research institute on economics in Brussels. Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines and was previously the lead energy specialist at the World Bank. Energiesnet.com does not necessarily share these views.

Editor’s Note: This article was originally published by The New York Times-NYTimes on March 12, 2022. EnergiesNet.com reproduces this article in the interest of our readers. All comments posted and published on EnergiesNet.com, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet.com or Petroleumworld.

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EnergiesNet.com 03 14 2022