Putin’s Carbon Tax: War Pushes Europe, and US, to Faster Renewable Transition

Did Vladimir Putin just impose a global carbon tax?

Above, a look at the geopolitics, and insane engineering, of the Nordstream 2 pipeline, newly deceased.

Washington Post:

For years, Europe’s dependence on Russian energy has held it back from taking powerful action against Kremlin mischief. But now, the Russia-Ukraine crisis is forcing a change unlike any before, driving the European Union to make plans for a permanent, far-reaching break from Russian oil and gas, European policymakers said.

The strategy to split from Russian energy, expected to be announced by the European Commission next week, would give Europe a freer political hand against Russia than it has had in the past. It would take years and come with a hefty bill for European taxpayers. But it comes with the crucial backing of Germany, a nation so entangled with Russia that one of its former chancellors, Gerhard Schröder, is the chairman of Rosneft, Russia’s biggest oil company.

With this week’s arrival of Russian boots on Ukrainian soil, Germany had enough. Chancellor Olaf Scholz shelved the Nord Stream 2 gas pipeline between Russia and Germany, a new project that was emblematic of Europe’s energy-focused approach to Russia. President Biden on Wednesday imposed U.S. sanctions on Nord Stream 2 and its corporate officers. And the European Commission’s planned strategy next week aims to accelerate the transition to renewable energy so that Europe never again is so dependent on the Kremlin to keep households warm and factories humming.

“A strong European Union cannot be so reliant on an energy supplier that threatens to start a war on our continent,” European Commission President Ursula von der Leyen told a conference of security-focused European policymakers Saturday.

She complained that Russia’s state-owned gas company, Gazprom, was delivering the bare minimum of gas this winter even though price and demand are through the roof — “a strange behavior for a company,” she said.

“We are doubling down on renewables. This will increase Europe’s strategic independence on energy,” she said.

Europe will remain attached to Russian energy for the foreseeable future. But in the long run, the shift in sources of supply will reorder power politics and could make Russia a more unpredictable geopolitical actor if it is weakened economically and freed from its long-standing need to maintain basic trade ties with the wealthy countries to its west.

A top Russian policymaker embraced the role of energy threat-maker Tuesday, underlining Russia’s view of itself as a spoiler in Europe.

“Germany’s Chancellor Olaf Scholz has ordered a stop to the certification of the Nord Stream 2 gas pipeline,” tweeted Dmitry Medvedev, the deputy chairman of the Russian Security Council and a former prime minister. “Fine. Welcome to a new world, where Europeans will very soon be paying 2,000 euros per cubic meter of gas!”

The sharp-toothed new E.U. strategy is expected to be unveiled March 2. It calls for a 40 percent reduction in fossil fuel use by 2030 and requires European energy companies to fill their storage tanks with natural gas this summer so that the continent is less dependent on Russian gas next winter than it has been in the past, according to an official involved in drafting the strategy, who spoke on the condition of anonymity to discuss the proposal before it is officially released. This season, Europe is poised to eke by with just enough gas after Russia cut exports roughly by half compared to a year ago. About 40 percent of the European Union’s natural gas currently comes from Russia. Elements of the plan were reported by Reuters last week.

The goal is “not being vulnerable to potential disruptions from one supplier,” the policymaker said.

“We are trying to wean ourselves off Russian gas,” the policymaker said. “When the time comes in 2028, 2029, 2030 and Russia decides to close us out, we can be like, ‘Fine.’”

The E.U. effort — which would still need to be approved by the 27 member states — would make it easier for individual governments to offer subsidies to consumers and companies that are struggling with high energy bills. And it would speed permitting for renewable energy projects, which in 2020 accounted for 22.1 percent of energy consumed in the European Union — around 2 percentage points above the 2020 target, according to the E.U. statistics office.

European policymakers acknowledge they would be in a better spot if they had started more concerted work on building robust energy independence years ago, but they say that in some ways skeptics have needed this crisis to be kicked into action. The planning has been underway for months, after Russia started scaling back gas deliveries last year but before it deployed troops along Ukraine’s border.

“Russia carefully calibrated this energy crisis to precede the circumstances around the current invasion,” Sarah Ladislaw, a managing director at RMI, an organization devoted to the clean energy transition, said in an email.

Even ahead of the new strategy, a constellation of efforts has been underway. Italian consumers are being urged to swap out their gas-fired water heaters in favor of electric ones. French President Emmanuel Macron declared ambitious plans to build more than a dozen nuclear power plants that — if actually built — would limit Russian natural gas sales to French utilities. Germany approved $68 billion in December to accelerate its climate and green infrastructure spending.

“It’s been a seismic shift over the last six months,” said Henning Gloystein, an energy analyst at the Eurasia Group.

The sharpest turnabout may have come Tuesday, with Scholz’s decision to freeze the Nord Stream 2 pipeline. The move was so sudden that even some of Germany’s closest European allies were taken by surprise. In meetings at the Munich Security Conference over the weekend, Scholz had told fellow leaders that he would place a hold on the pipeline if Russia invaded Ukraine, according to a senior European diplomat familiar with the conversations who spoke on the condition of anonymity to discuss the sensitive talks. The diplomat said that the furious tone of Putin’s speech Monday may have accelerated the German decision.

“The situation today is fundamentally different,” Scholz told reporters in Berlin as he announced the move against the pipeline. “These are very difficult days and hours for Europe. Almost 80 years after the end of World War II, war is looming in Eastern Europe. It is our duty to avert such a catastrophe.”

Policymakers acknowledge that the shift can’t happen overnight, meaning that Europe will still rely on Russia for its energy needs throughout the current geopolitical crisis. If Russia cuts off gas entirely ahead of next winter — a step policymakers say they believe remains unlikely — it would force a series of painful choices across the continent.

“In the short and medium term, there are no good options,” said Nathalie Tocci, the head of the Italian Institute of International Affairs and an adviser to E.U. policymakers in Brussels. “The problem is not now, but next fall. And by next fall we will not have found the silver bullet.”

Any fix to a total, immediate split from Russia would require sacrifice across the continent — something that would be painful for European politicians who are wary of infuriating their voters.

“There’s a list of torture that you can think of,” said Georg Zachmann, an energy expert at Bruegel, a Brussels-based policy think tank, who said Europe could have a 20 percent gas shortfall even if all of its alternatives to Russia-delivered gas are at full capacity until next winter.

“It would require the member states to come together. Nuclear, cutting off Belgian industrial consumers, increasing household tariffs in Bulgaria,” Zachmann said.

A decision at the top to make a break from Russia “doesn’t change the fact that Europe needs Russian gas. Nothing is going to make a difference in the medium scenario,” said Jason Bordoff, the founding head of Columbia University’s Center on Global Energy Policy, who worked on energy and climate issues in the Obama administration.

“It takes time to build out renewables and to electrify heating and diversify fuels for heavy industry,” Bordoff said. “And it takes time to build infrastructure needed to pull natural gas from world markets. Russia is still the cheapest gas into Europe. So you have to be willing to pay a premium” for more expensive liquefied natural gas.

So, US gas companies are big winners in the medium term. But look more closely.

As US LNG exports grow, US consumers more and more are competing with global gas prices, and consumers in Asia and Europe who will pay several times more for the product.
If you believe markets work, that can only lead in one direction.