The European Energy UnionUpdated on 05.03.2022
10 min read
Energy has been a top priority for European countries ever since the creation of the European Community. With this in mind, since the end of the 2000s, the European Union (EU) has been pursuing the goal of leading the world energy transition by reducing both its use of hydrocarbons and its greenhouse gas emissions in just a few decades. With the 2020 health crisis followed by the 2022 geopolitical and energy crisis, Europe’s ability to steer its course through such uncertain times has been under great strain. Patrice Geoffron, Professor of Economics at Paris-Dauphine University/PSL, analyzes this strategy from the perspective of the global economy.
Europe was the first region in the world to enter the carbon era in the 19th century, and is now declaring its ambition to be the first to find greener alternatives. The strategy began to take shape at the end of the 2000s and Europe’s determination to achieve this goal was affirmed by its strong commitment upstream of the COP21 in 2015, resulting in the Paris Agreement. Later in 2019, this led the European Commission to define a “Green Deal”, the aim being to steer the EU toward carbon neutrality in 2050, as both a response to environmental challenges and a new growth strategy.
Such an ambition is already having high repercussions: targeting a 55% decrease in emissions by 2030 means tripling the pace of compared with the previous decade. The European Commission has estimated that achieving these objectives will require an annual investment of approximately 1,000 billion euros in decarbonized technologies (renewables, , storage, transportation, etc.).
The health crisis was the first test for the Green Deal. In May 2020, the Commission proposed a plan that would lead to the leveraging of 750 billion euros on the markets, and forecasting that at least 30% of the funds would be dedicated to projects related to curbing climate change. Unlike what happened during the financial crisis in the 2000s, where the room for maneuver was drastically reduced when it came to financing the transition (triggering a ‘stop and go’ situation in the support of low-carbon sectors in many Member States, particularly in southern Europe), this time Europe strived to maintain its course toward decarbonization as it weathered the health crisis.
The crisis generated by the conflict in Ukraine in 2022 raised the specter of another threat - that of securing the supply of fossil energies, owing to the marked decrease in their “indigenous” production. Over the last decade, oil and gas extraction in the EU has dropped by 40%, and that of by 30%. The material impact of this trend is that the EU is 90% dependent on imports to cover its oil consumption, 75% for gas and 40% for coal. And for these three energy sources, it transpired that Russia is Europe’s leading supplier, unveiling another latent threat.
The crisis has generated several material consequences: the price of fossil energies transiting to Europe will be higher, as the breach of trust with Russia puts the markets (in particular that of liquefied natural gas) under strain and, above all, the threat of shortages will loom large at the beginning of the decade (in particular for ).
The crucial issue is to imagine the impact of this broken trust on Europe’s decarbonization ambitions in this decade. In the short term, the security considerations will cause countries to fall back on coal, to endure the coming winters. Alongside that, however, decarbonization solutions will become more competitive: faced with higher gas and (plausibly) oil prices, their decarbonized alternatives will be more economic. This will apply to renewables (wind, photovoltaic, green gases), and to investments in energy efficiency (domestic sector, the tertiary sector and industry), equipment that does not require combustion engines (in particular electric vehicles), and storage (using batteries or at a later stage).
And throughout Europe, it will doubtless mean accepting reductions in consumption, currently seen as measures limiting freedom, but which the crisis now imposes.
Patrice Geoffron has a PhD in industrial organization and is Professor of Economics at Paris-Dauphine University, where he was Interim President and International Vice-President. He is the Director of the Dauphine energy-climate team which oversees several research chairs (in particular Climate Change Economics) and of a Master's degree course (Energy-Finance-Carbon), at the heart of a close-knit network of industrial partners. He is a member of the Cercle des Economistes (French think tank founded in 1992). Prior to that, he was part of the team of experts advising the Citizens’ Convention on Climate.