The Twin Energy Crises - Climate Change and Russia
We face a paradox: We have never needed fossil fuels so much; we have never needed to get out of fossil fuels so much. Put another way, on the one hand we have an acute crisis, the energy consequences of Russia’s invasion of Ukraine. This is a crisis reported 24/7, measured in days, weeks and months and by households and families in impossibly high fuel and electricity bills. On the other hand, we have a second crisis, the consequences of climate change, measured in years and lifetimes, and by the need to avert or cope with an increase in global warming that, according to the latest IPCC report, is currently set to exceed 1.5°c within the next decade, with the risks posed by extreme events such as heatwaves, droughts and wildfires increasing every year that we fail to act effectively and with our window to act closing rapidly. 1
We need to tackle both problems simultaneously, otherwise the measures we take to resolve the first crisis intensify the second. That requires an integrated approach, both within government and between governments.
What both crises have in common is a single message: we have to reduce our dependence on fossil fuels as fast as possible. Note the word reduce. That is the immediate target. I am NOT talking about a complete phaseout of fossil fuels. If that is possible, it will come later.
The bottom line in both cases is that we face a potential electricity crisis. It is the use to which oil and gas is put rather than the oil and gas itself. The problem is that it takes months - effectively years - to bring new renewables-based electricity on line and we need to tackle the energy consequences of Russia’s invasion of Ukraine today.
What can we do?
We can place punitive tariffs on purchases of Russian oil and gas. Already Russian companies are facing problems marketing Urals crude because they are unable to handle dollar payments and they cannot get paid in roubles. Imposing tariffs is not too dissimilar from the way in which Western Europe and Japan addressed the oil price crisis of the 1970s by hiking fuel taxes, which effectively served to promote energy efficiency and, eventually, severed the link whereby it was assumed that every extra increase in GDP would require a greater input of energy. The income from such tariffs can be used for such purposes as investment in renewable energy and offset payments to industries and households to reduce the impact of higher fuel bills. Windfall taxes on companies benefitting from record profits due to high energy prices can serve much the same purpose and be used in much the same way.
Another possibility might be to place payments for Russian oil and gas into escrow accounts, which could only be drawn upon when the conflict ends. The onus would then be on Russian vendors - or their political masters - to determine whether they would terminate supplies.
Both proposals have one essential advantage: they have the potential to help to keep energy flowing from one of the world's major suppliers while at the same time making it likely that the complexity of dealing with Russian companies will reduce such sales, to the benefit of other suppliers.
A complete cutoff of Russian oil and gas
What would be extremely difficultly to handle, though not necessarily impossible, would be a total cutoff of Russian oil and gas. Russian routinely supplies around 7 million barrels a day (mb/d) of liquid fuels - crude oil and natural gas liquids - to world markets. But while one country alone, Saudi Arabia, has around 2-3 mb/d in spare capacity that can be brought in line in months, if not weeks, increasing supplies from other producers raises all sorts of questions, since - in purely supply terms - the best options are Iran and Venezuela. So be careful: If ye sup wi’ the de’il, tak a lang spoon. Or, for those not familiar with broad Scots, If you dine with the devil, keep your distance.
On gas we are on particularly uncertain ground. If there were to be a collapse of Russian oil and gas supplies, there would also be an immediate need to maximise use of alternative energy sources, notably coal and nuclear. Germany, would feel the most acute impact, since it relies on gas for more than a quarter of its total energy consumption and which, before the Ukraine war, received more than half its gas imports from Russia. 2 However Germany still possesses the ability to switch coal-fired stations back on quickly and could perhaps prolong its use of domestic nuclear power plants.
There would also be rationing. The introduction of rationing for oil is relatively straightforward, not least because so much is required as automotive fuel for which simple ration systems can be introduced virtually overnight. But rationing for gas is far more complex. Gas supplies for major industries, and particularly for cities, have to be continuous. With a car or truck, if there is no petrol you can turn off the engine, park the vehicle and then, with a cursory check a few weeks or months later, restart everything when fuel is once again available. You cannot do that gas, since the checks required are far more onerous and, for a city, may take months to complete. In practise, it would require at least an EU-wide coordination of gas supplies to ensure that some level of supply reached consumers throughout the many months - or years - that it would take to secure major volumes from alternative suppliers, such as US, Qatar and offshore East Africa.
Renewables, notably offshore wind power, are now fully competitive with fossil fuels for electricity generation. What is required is backup to cover the inherent intermittency of wind and solar power, notably in the form of large scale battery storage. This can be done both on a national basis and, particularly in the EU, on a cross-border basis to enable inland nations to benefit from offshore power.
Speed up cross-border gas and electricity transmission systems.
Strengthen and expand taxation of carbon, including introduction of carbon border adjustment tariffs.
Implement the IEA’s 10-point plan, which includes turning down the thermostat and replacing gas boilers with heat pumps.
Focus as much on the mundane, boring and practical as on the dramatic: energy efficiency, especially insulation. Turning down the thermostat. Switching from private to public transport.
There is an also the need to pay attention to global ramifications. A northern hemisphere energy crisis has tremendous implications for the rest of the world, because of the North’s massive consumption of energy. We need to take the requirements of developing countries into account not just to enable them to compete for scarce resources but to survive, not least because of the impact Climate Change will likely have on migration and thus on the futures of both developing and developed countries.
There are, of course major energy security consequences stemming from Putin’s invasion of Ukraine. As the International Energy Agency’s Executive Director, Fatih Birol, has noted: “Russia is using its natural gas resources as an economic and political weapon.” 3
Barbara Pompili, minister for ecological transition for France, holder of the EU’s revolving presidency, has said: “More than ever, getting rid of Russian fossil fuels and of fossil fuels in general is essential. What is at stake is both the need to accelerate the fight against climate change and, as we can see now, the short-term energy security of the European continent.”4
And how do we do that? We need to look beyond the conventional organisations for energy cooperation. Whoever thought we should perhaps look to NATO to help coordinate our approach not just to energy security in the Russia-Ukraine context but to energy security in the context of ferocious climate change?
There is one particularly crucial element that needs to be addressed: energy pricing. The soaring cost of energy, notably for heating and transport, will itself drive energy efficiency. Put bluntly, many households and individuals will simply not be able to afford to consume as much electricity gasoline or diesel as they used to. And, at the same time, food costs are set to increase substantially because of the rising cost of the energy required to produce, process and transport food to market.
This raises the question of energy poverty. In such a crisis it becomes absolutely essential for governments to break the link between international prices, wholesale prices and ordinary consumer prices. We simply cannot allow people die for lack of electricity. This means that, for a while, governments will have to subsidise energy, either directly in the form of price caps on petrol and diesel and on price households pay for gas and electricity or indirectly through some kind of rebate or tax amelioration system.
This needs to be done, but it is dangerous. It is incredibly difficult to wean consumers off subsidies. Governments will need to be upfront with the truth, and state bluntly that when they say this is a temporary measure, they really mean it.
But what this war reminds, us, however, is that for democracies truth remains the most powerful weapon.
1: https://theconversation.com/five-key-points-in-the-ipcc-report-on-climate-change-impacts-and-adaptation-178195. Published 3 March 2022.
https://www.ipcc.ch/report/sixth-assessment-report-working-group-ii/ Published 27 February 2022.
2: In 2020, Germany consumed 86.5 bcm but produced only 4.5 bcm from its own fields.
Its gas imports totalled 102.0 bcm, higher than its actual consumption because it routinely serves as a transit country for deliveries to neighbouring countries, notably the Czech Republic and Poland. Of these 102.0 bcm of imports, 56.3 bcm came from Russia.
Source: BP Statistical Review of World Energy 2021, June 2021.