The divergent impacts of the war in Ukraine on the EU’s energy transition
- The war in Ukraine has a worldwide societal and economic impact.
- The war has provided more evidence of the urgency of the energy transition, and of the need to cut down the dependency on fossil fuel supplies.
- On the other hand, it is tempting to take temporary measures to manage the current emergency situation, but these can benefit fossil fuel consumption or risk a carbon lock-in.
- In this article, we analyse the impact of the war in Ukraine, and the effects that this may have on the speed of the energy transition.
- Policies made to adjust to the effects of war can play a major role in supporting a faster pace of decarbonization.
- We are at a tipping point where we must decide whether to convert a crisis into an opportunity or see an unaffordable delay in our route towards a decarbonized economy. The EU should achieve a balance between mitigating short-term critical impacts and a firmly accelerated energy transition.
 According to the World Resources Institute, carbon lock-in happens when “fossil fuel-intensive systems perpetuate, delay or prevent the transition to low-carbon alternatives”. “The overarching point…is that once intentionally long-lived infrastructure, facilities and equipment are installed, it can take years or even decades before they are eventually replaced. If they are carbon-intensive, their lifetime greenhouse gas (GHG) emissions become enormous.”
A systemic disruption at the root of the energy supply
Besides the humanitarian impacts of the war in Ukraine, the consequences also reach the core of the EU’s energy supply. The ethical concerns raised regarding the financing of the war machine through Russian fossil fuel exports have raised critical questions. In terms of primary energy, almost 70% of the total EU supply remains fossil fuels: oil (35%), gas (24%) and coal (10%). More than 60% of these are imports. Of which Russia provided 25% of the oil, close to 40% of the gas, and almost 50% of the coal in 2020. The war-induced uncertainty seriously threatens the security of energy supply – the continuous availability of energy sources at an affordable price. Figure 1 outlines various events that can happen as a result of the war that can lead to an acceleration of the energy transition or have the opposite effect. The war has led to a climate of uncertainty in the global economy, and the international sanctions imposed on Russia include constrained trade. For those countries significantly dependent on Russian energy, this environment questions their security of supply, both in terms of its affordability and/or its continuity.
There are currently various interruptions to Russian fossil fuel exports and further interruptions cannot be ruled out. The EU is already focusing on reducing imports of coal and gas, and Russia has stated that it wants payments for gas in roubles. This partly explains the current price levels that affect the main economic sectors across the EU. The alteration of the coal supply could, for example, impact power production and the iron industry. Extremely high gas prices affect industrial and residential consumers, both through increased heating costs and through significantly higher electricity prices. And last but not least, the very high oil prices result in increased transport costs. This affects logistics costs and is also translated to an increased costs of goods, systematically driving up inflation. More specifically, among the affected commodities other than fossil fuels, imports of critical materials in the value chain of low carbon technologies could become a concern as well. Especially those coming from Russia. For example, class 1 nickel is a key input for hydrogen, electric vehicles, and battery storage. Class 1 nickel is currently mainly produced from sulfide ores, and Russia is one of the main owners of deposits (besides Canada and Australia). See our previous research, which provides a detailed assessment of the impact of the war on industry in the EU.
In short, the whole economy is affected. The potential impact in terms of GDP associated with different scenarios of war and the prices for gas and oil is assessed in this article. It concludes that the impact of high prices could range from 0.6 to 1.7 points in terms of GDP reduction for the Eurozone.
Table 1 summarizes the main impacts of the war on the energy transition (also see Figure 1). These include both price and continuity of the energy supply, increased awareness on the geopolitical implications behind the energy suppliers, and an altered economic evolution.
Main impacts of the war on energy transition in the EU
Table 2 describes how the war can or could affect the energy transition and the goal of reducing greenhouse gas emissions in the short and the middle-/long-term. For each effect, there are suggestions for policies to ensure a balance between mitigation of severe immediate impacts in the security of supply, and prompt acceleration of the energy transition. At this moment, it is pivotal to keep the mid- and long-term perspective in mind when selecting urgent mitigating measures. Otherwise such actions may delay the energy transition and prolong the reliance on (imported) fossil fuels. The latter is, in essence, the root cause of the current challenges. Actions taken by companies or individuals should also not be underestimated. They could, at least on a small scale, help accelerate the energy transition, even if policies do not support an accelerated transition.
Divergent impacts on the speed of the energy transition
In conclusion, it is clear that, as a result of the war in Ukraine, many opposing factors are affecting the speed of the energy transition. On the one hand, the current situation creates a strong business case to invest in energy efficiency measures and in more renewable energy assets, and there are more and more business and consumers willing to invest. But the high energy prices coupled with inflation are also preventing some stakeholders who want to invest in the energy transition from doing so. On the other hand, the high fossil fuel prices also make it attractive to invest in fossil fuel extraction and assets, and it is tempting to support such investments as short-term mitigation measures.
Without a doubt, energy security and affordable energy are clearly top priorities for governments in the short term. And there seems to be a momentum towards speeding up the energy transition when the short-term hurdles have been tackled. In this context, it is essential for governments to also ensure policies and support measures include a long-term perspective in order to avoid negative effects such as prolonged higher emissions and carbon lock-in.