Rob Bailey
Research Director, Energy, Environment and Resources
Antony Froggatt
Senior Research Fellow, Energy, Environment and Resources
Women walk by the main office of the Ukrainian Naftogaz state oil and gas company, in Kyiv, 21 March 2014. Photo by Sergei Supinsky/AFP/Getty Images.Women walk by the main office of the Ukrainian Naftogaz state oil and gas company in Kyiv, 21 March 2014. Photo by Sergei Supinsky/AFP/Getty Images.

The recent EU summit showed how the Ukraine crisis has put security of supply at the top of Europe’s energy agenda. But member states should balance this with policy objectives on competitiveness and environmental sustainability.

The European Union Spring Council, which concluded on the 21 March, was originally planned to focus on the EU’s draft climate and energy legislation. However recent events
in Crimea meant that Ukraine was also a priority for the heads of government meeting in Brussels. The two issues are linked: Russia supplies about 30 per cent of the EU’s gas, of which about half is piped through Ukraine. The current crisis therefore raises some uncomfortable energy-related questions for the EU, in particular should Russia decide to turn off the taps.

A major supply disruption for the EU is unlikely. Cutting off the EU’s gas would be extremely costly for Russia, and in particular for the state gas company, Gazprom (European gas sales are of the order of $100 million a day). Nor would it be particularly effective: Europe has significant gas storage capacity, which due to the mild winter is well stocked and sufficient for at least a month. Moreover interconnections have improved since 2006 and 2009, when disputes over payment saw Russia interrupt Ukraine’s supply with knock-on effects for Europe. The EU now has significant spare capacity (about 60 billion cubic metres) on other pipelines into Europe, while recently constructed liquefied natural gas (LNG) import infrastructure now supplies about one-sixth of the EU’s gas.

Despite this, a repeat of 2006 and 2009 is still possible. Already Gazprom has warned Ukraine that its estimated debt of $1.55 billion is jeopardizing the current discounted gas price agreement, and a representative of the Russian Energy Ministry has said that the lower tariff will be stopped in the next quarter. But if this was the only reason for a supply disruption, it could be overcome by financial assistance from the EU, its member states, or the IMF for that matter.

Wider implications

Arguably, the most significant implications of the Ukraine crisis for European energy and climate policies will be felt in the medium to longer term. The first is a setback for European climate diplomacy. The Spring Council was initially supposed to have reached a political agreement on draft climate and energy legislation, including a binding cap on greenhouse gas emissions (GHG) of 40 per cent below 1990 levels by 2030, a target that 27 per cent of EU energy comes from renewable sources by 2030 and new governance arrangements under which the Commission would review member state plans to ensure that ‘actions and pledges are sufficient to deliver the Union’s climate and energy targets’.

However, during the meeting member states focused mainly on the Ukraine crisis, among other things signing the political provisions of the Association Agreement to create closer economic and cultural ties between Ukraine and Europe. No agreement was reached on the greenhouse gas target, and a final decision on the new policy framework could be delayed until October. This potentially puts an end to the EU’s plan to attend the UN secretary-general’s Climate Summit in September with its target agreed. Unfortunately the purpose of the summit is for governments to ‘bring bold announcements and actions’ as a way to catalyse action as momentum builds towards the 2015 UN Framework Convention on Climate Change meeting in Paris, when a new global climate deal is set to be agreed.

As well as delaying the decision on 2030 targets, the Spring Council also signalled a shift in priority for energy policy. This had previously been focused on competitiveness and the energy price differential between Europe and the US arising from the latter’s shale gas revolution, but European Council President Herman Van Rompuy underlined that the discussion was now ‘focused primarily on how to reduce [Europe’s] high energy dependency, particularly relevant of course in the context of the situation with Ukraine’.

One way for Europe to reduce dependency on Russian gas would be to increase imports from elsewhere. In response to the Ukraine crisis, the four Visegrad states of Poland, Slovakia, Hungary and the Czech Republic recently petitioned the US Congress to begin exports of shale gas, but with no liquefaction plant of note completed in the US, this is little more than wishful thinking. Meanwhile European ambitions to develop domestic shale reserves will take years if not decades to bear any significant fruit.

Diversification of gas supplies will accelerate with the construction of more LNG terminals, particularly in the Baltic region, and the construction of the TAP pipeline from Azerbaijan to Italy and the Southern Balkans. However, reducing the need for so much gas, either through energy efficiency or with alternative sources of generation, are equally if not more effective energy security tools (as our colleague Walt Paterson noted in a 2007 World Today article).  Furthermore, energy efficiency and the greater use of renewable energy are both fundamental parts of the EU’s strategy to reduce GHG emissions.

The European Council has requested that the Commission develop a comprehensive plan by June this year to reduce EU energy dependency. Given the current focus on Ukraine it is understandable that energy security is at the forefront of policy discussions. However, the Ukraine crisis demonstrates how rapidly energy priorities can shift. An important lesson for policymakers is the need to balance security with other objectives, in particular competitiveness and environmental sustainability, if energy policy is to be stable and resilient in the long term. This underscores the importance of technologies and measures that deliver simultaneously across all three. Top of list must be energy efficiency.

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