As Russia’s invasion of Ukraine becomes more violent, the world is on the cusp of what may become the worst energy crisis since the 1970s. Whereas those crises only involved oil, Russia is one of the world’s largest producers of nearly every form of energy—oil, natural gas, coal, and even the fuel used in nuclear power plants. The unfolding energy calamity demands an immediate response to keep cars moving, homes powered and heated, and to prevent a global recession induced by high energy prices. But as policymakers look for quick fixes, there is also the urgency of weaning the world from fossil fuels, as a major United Nations report made clear last month. In the long run, doing so benefits not just the climate, but also energy security for large consumers of fossil fuels. Pragmatic policies are needed that ensure secure and affordable energy today, and that help to bring about a lower carbon future.
Even though American and EU policymakers initially designed sanctions to exclude energy, the International Energy Agency (IEA) predicts nearly half of Russia’s oil exports will be off the market by April as buyers steer clear—although some of that will still flow to market at steep discounts in under-the-radar transactions with countries like China and India. Natural gas continues to flow into Europe, but Russian leaders have threatened to cut off those supplies in retaliation for sanctions. Even before the invasion of Ukraine, energy markets were tight after years of underinvestment as a result of social pressures to curb fossil-fuel spending, the pandemic and the industry’s poor recent returns. As a result, energy prices soared, before falling slightly.
In the short term, there are few options to offset lost Russian supply. For oil, they all involve complex geopolitical trade-offs with Iran, Saudi Arabia, the United Arab Emirates or Venezuela.
American production was already going to grow this year, but there are limits to what the government can do to boost that further. Governments need to be ready to authorise the release of more oil from strategic stockpiles. But even a historically large release of, say, 100-200m barrels (roughly equivalent to 1-2 months’ worth of the Russian oil that the IEA expects will soon be off the global market) will not be a panacea as the crisis worsens, and as sanctions and the stigma of doing business with Russia increase.
Replacing lost Russian natural gas, which supplies 40% of Europe’s needs will be even harder. Europe can fire up existing coal plants, import more liquefied natural gas, and dial down the thermostat, but it will take years to fully wean Europe from its dependence on Russian gas. And the urgency of climate change means the options to curb gas use are more constrained than in the 1970s, when one of the primary ways G7 countries tried to reduce oil use was to build new coal facilities.
The most meaningful options to bolster energy security require longer timeframes, and are also often the same actions needed to curb carbon emissions. As this crisis with Russia makes painfully clear, a continued dependency on fossil fuels can lead to serious geopolitical vulnerability. While clean energy sources bring their own geopolitical risks, a decarbonized energy system will also be a more electrified one, and since most clean electricity is locally produced, one with far less energy trade across borders.
Yet the world cannot ignore more immediate energy security needs in the process of making this transition. To do so emboldens petro-states like Russia and risks undermining climate action itself. If energy security and climate ambition come into conflict with one another, it is the climate that will lose out.
How can leaders better manage the gap between energy needs and green goals, particularly since the gap between the two is growing, not shrinking. A transition that meets all our energy policy goals—security, affordability and sustainability—requires three elements.
First, we must double down on the clean-energy transition. Most countries today are a long way from fulfilling their pledges to reduce carbon emissions. In America, passing the clean-energy components of President Biden’s “Build Back Better” plan–such as tax credits for clean electricity, electric vehicles, and home energy efficiency–would be a good place to start. Similarly, the European Commission’s recently announced REPowerEU plan would reduce Europe’s dependency on Russian gas by boosting energy efficiency, frontloading investments and speeding up permitting for renewable energy. Some countries are accelerating clean energy plans to reduce Russian dependence. Germany has announced that it will phase out combustion-engine cars by 2035 and speed up renewables deployment. Britain has decided to expand offshore wind “to protect national security”. And Belgium is reconsidering its plan to phase out zero-carbon nuclear power.
Second, we need to invest in enough hydrocarbon infrastructure to meet today’s energy needs, while minimising the extent to which such investments hinder a transition over the longer term. In Europe, for example, that will require investing in terminals and storage for liquefied natural gas and pipelines to import more sources of natural gas, as Germany recently announced it would do after abandoning the Nord Stream 2 pipeline project to import more Russian gas. The European Commission will struggle to achieve its goal of getting off Russian fossil fuels entirely before 2030 if it relies solely on existing infrastructure.
The problem is that in the best-case scenario, these investments in oil and gas will become obsolete before many investors can see a reasonable return on their investment. Today’s energy crisis thus throws into sharp relief the need to reconsider governments’ role in energy infrastructure and whether to designate certain projects specifically as “transition assets”. For those, governments might lower the cost of capital and long-term risk in exchange for agreements to wind the assets down sooner than companies typically would. Or it may require that such assets be built, at additional cost, to be “transition friendly”, such as equipped to eliminate methane leaks, ready to be retrofitted for carbon-capture technology, or built to accommodate other low-carbon fuels like hydrogen.
Third, in the messy process of transition to clean energy, we need more, not fewer, tools to mitigate inevitable energy-market volatility. To smooth the jagged path to net-zero carbon emissions, America, the EU and their allies should increase strategic stockpiles; avoid prematurely retiring existing energy assets, such as nuclear power plants; expand programmes to curb consumer usage in periods of peak energy demand; and develop more mechanisms to insulate consumers from periodic extreme energy prices shocks (such as triggers for subsidies to low-income consumers).
As households struggle to pay their energy bills, and Europe attempts to ensure it can keep the heat and lights on next winter if Russian gas flows are slashed, today’s energy crisis should be a wake-up call. We need to ensure adequate supplies of energy, including fossil fuels, to meet today’s needs while dramatically accelerating a transition to clean energy and building new policy tools to facilitate investments that achieve both goals.
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