The challenges of Europe’s green energy transition

Energy - February 23, 2023

Energy has become a particularly pressing concern for Europe, taking centre stage in EU policymaking in the ongoing volatile context of Europe’s energy security crisis, caused by geopolitical upheavals such as extreme weather events, supply chain bottlenecks, increased demand for energy in the aftermath of the pandemic, and the Russian invasion of Ukraine. In the last few years, the EU has adopted important policy packages to tackle the multifaceted energy insecurity crisis, with the objectives of limiting high gas prices and energy bills for consumers, increasing intra-EU solidarity, weaning Europe off its dependence on Russian gas while seeking alternatives, reducing the EU’s import dependence for energy and increasing energy autonomy, and importantly, accelerating the green transition to bridge all the other objectives and tie them with the bloc’s carbon neutrality ambitions.

For instance, in December 2022 member states agreed on a price cap for Russian oil, an emergency market correction mechanism to cap gas prices, and reached a provisional agreement with the EU Parliament on the ‘REPowerEU’ scheme to diversify energy supplies, curb demand, accelerate clean energy, and secure strategic autonomy. Moreover, the current situation of record high electricity prices has led to calls for an overhaul of the architecture of Europe’s electricity market, spearheaded by Spain and France, for which the Commission will present proposals in March 2023.

The EU’s policies to achieve energy security and carbon neutrality will have important socioeconomic consequences for Europe’s future and its energy mix, so policymakers should carefully consider the impact of different policy strategies. This is addressed by a recent report published by the Latvian Economists Association, titled “The Future of European Energy and Transformation Challenges for Latvia”. Although framed as a case study of Latvia, the report also analyses various scenarios for Europe’s energy transition and their impact on Europe’s future energy mix, elaborated by institutions like Bloomberg, IPCC and the OECD.

The report emphasises the commitment of Europe’s energy sector to transition towards more sustainable, secure, affordable, and low-emission energy generation, to address energy insecurity and fulfil the Green New Deal. The report underscores current challenges, such as the energy trilemma (costs, security, and sustainability), the EU’s heavy reliance on natural gas, oil and oil products for 57% of its energy supply, the volatility of natural gas prices, and the high import-dependence of Europe’s non-renewables (for instance, until Russia’s invasion of Ukraine, 41.3% of natural gas and 26.9% of crude oil and LNG were imported from Russia). Summarising the scenarios, the report asserts that the energy transition will be built upon the three pillars of a) reducing energy demand through increased efficiency, b) end-use electrification, and c) decarbonisation of electricity generation. Regarding the latter, the report highlights European efforts to expand renewables, and the important contribution these will make to Europe’s future energy mix.

The report’s main conclusions are that to transition and tackle energy insecurity in the short-term, Europe will rely on refiring coal plants, alternative natural gas and LNG suppliers, and nuclear energy to guarantee baseload generation. In the longer-term, however, the scenarios envision a replacement of fossil fuels with a low-carbon, independent European energy system based on renewables like solar, wind, hydroelectric, and hydrogen. As far as Latvia is concerned, the report emphasises its efforts to desynchronise from Russia’s electricity system and synchronise with Europe’s, as well as its renewable energy projects like nuclear reactors, wind, and solar parks.

However, the report also highlights the tensions between member states over the role that coal and nuclear power should play as baseload capacity provisioning technologies. Indeed, Europe’s energy transition will not only have high socioeconomic costs, but will also face significant political hurdles. In fact, there are complex constellations of conflicting visions and interests between member states about the energy transition. Moreover, in an era of “constraining dissensus” where the EU is no longer shielded from mass politicisation, potential public opposition to the costs imposed by certain aspects of the green transition will likely be an important factor in national governments’ political calculus. Indeed, according to an ECFR study, there are significant concerns in many member states about the socioeconomic costs of the green transition, such as the prospect of unemployment from closing down carbon-intensive industries, higher energy and fuel costs, declining living standards, and the future of coal and nuclear power.

These divisions are manifested in intergovernmental bargaining in the Council. For instance, national conservative governments like Poland’s have opposed the EU’s Green Deal on the basis of socioeconomic concerns due to the weight of fossil fuels to their economy, and because they consider energy policy to be a sensitive matter of national sovereignty. As far as nuclear power is concerned, there is conflict between member states like France which desire nuclear energy to be part of the EU strategy for achieving carbon neutrality, and member states like Germany and the Nordic countries with anti-nuclear views. This conflict spills over into cleaner energies like hydrogen, stemming from France’s desire for nuclear-derived ‘red hydrogen’ to be classed as a green energy for the EU’s renewable energy targets, and the reticence of states like Germany and Spain. Furthermore, conflict extends to other energy-related questions like electricity market reform, which pits states like Spain and France who desire reform to decouple electricity prices from gas, and states like Germany which are sceptical of overhauling the market. In conclusion, the energy transition is a broadly shared goal, but is riddled with conflicts between member states that will present challenging roadblocks in its implementation.