The war in Ukraine is above all a humanitarian disaster that many in Europe no longer thought possible. In addition to major geopolitical consequences, there are also severe economic consequences. In the Netherlands, you only have to drive to the petrol station or look at your energy bill and it quickly becomes painfully clear how much Europe has become (too) dependent on Russia in essential markets. The great dependence on gas from Russia is now resulting in rocketing energy prices and a market that is operating at the limits of its capacity. Uncertainty and instability dominate the international market and, as a result, the discussion about energy dependence and the energy transition is rapidly intensifying at every possible level.
Russian gas as elephant in the room
There has been longstanding discussion within the EU about the large gas imports from Russia, and the dependence that the West has created as a result. Yet dependence on Russian gas has only increased in recent years. In the Netherlands, around 15 to 20% of the gas supply comes from Russia, and across Europe as much as 45% by 2021. The problem with this was always obvious – yet Russian gas often proved to be the painful elephant in the room.
The consistent choice of Russian gas is in line with the longstanding, deliberate policy of promoting economic interdependence between the EU and Russia. Wandel durch Handel, was the idea in Europe: if we trade intensively, mutual dependence grows and peace in Europe is guaranteed. However, this peace has proven to be a utopia; moreover, in an extensive analysis, the Volkskrant describes that Russia was happy to watch Europe tie a hand on its back with the growing interdependence. On the other hand, economic dependence has also made Russia more vulnerable; with the massive import of gas from Russia, the West is a major financier of the Russian treasury. Russia is the third-largest oil producer in the world: energy – overwhelmingly in the form of oil and gas – accounts for 60% of exports and 40% of Moscow’s treasury.
The invasion of Ukraine marks a historic turning point in international relations. The West realizes that a new era has begun, and that trade and cooperation with Russia is no longer justifiable, reliable, or desirable at this time. This is resulting in massive sanctions that Russia has not seen before. As such, it became clear last week that Western countries are working on the toughest possible sanction against Russia: stopping the import of oil and gas. The US led the way with an immediate ban on Russian oil, gas and coal. The UK will also stop importing gas and oil this year.
For the EU, this is still a step too far; it simply depends too heavily on Russian gas. Yet here too, a shift is taking place. Last week the European Commission presented a plan to reduce the dependence on Russian gas by two-thirds by the end of this year. According to the plan, called REPowerEU, the EU can do without Russian gas before 2030 by diversifying gas supplies and accelerating the promotion of renewable energy. In the Netherlands, too, the government has been called upon by means of a widely supported motion in Parliament to come up with a plan that would allow the Netherlands to become independent of Russian gas as soon as possible.
It is evident that the current crisis has the potential to accelerate the European energy transition. In the short term, there is a need to look for reliable gas suppliers and to build up and obligate gas reserves. The future, however, is sustainable; in the EU’s hyperambitious REPowerEU plan Frans Timmermans leaves no room for doubt: “let’s dash into renewable energy at lightning speed”. The aim of the brand new plan is to switch to sustainable energy sources like wind, sun, hydrogen and biogas (especially bio-ethane) in the highest gear. In addition, massive efforts must be made to save energy and the import of hydrogen must provide a major contribution. The European Commission is thus stepping up the pace of the earlier Green Deal plans and the Fit-for-55 objectives. In this way Europe’s energy supply must become autonomous, resilient and above all sustainable in record time.
The disconnection of Russian gas is also currently a hot topic in the Netherlands. The House of Representatives has called on the government by means of a motion to draw up a plan to reduce energy dependence on Russia as quickly as possible. In addition, the topic has been discussed in plenary debates, a roundtable and a special Commission debate is scheduled soon. However, the urgency is perhaps best reflected in the strong support from the Groningers for further opening the gas tap in the province in order to be less dependent on Russian gas. For years, gas production in Groningen has been one of the most sensitive issues in the country; the reaction of the Groningers therefore clearly reflects the sentiment in the Netherlands – we are also done with Russian gas here.
Energy transition – cheaper than ever?
In the space of two weeks, the energy market has changed fundamentally. Olof van der Gaag, chairman of the Dutch Sustainable Energy Association (NVDE), remarked during a roundtable discussion last week in the Dutch House of Representatives on Russian gas that a situation that was unthinkable until recently has now occurred: fossil energy has become unprecedentedly expensive and renewable energy is suddenly the cheaper and more reliable alternative.
As a result, the market dynamics are changing significantly. The current situation leads to strong sustainable incentives: for consumers it has become almost a necessity to make energy saving a high priority and to make the switch to cheaper green electricity, and for producers this in turn leads to strong incentives to produce green electricity. The conclusion, according to van der Gaag, is that the energy transition could well be ‘cheaper’ than we had ever imagined. Simply because renewable energy and energy savings are cheaper than continuing along the current route, which many previously thought would be the other way around.
Looking ahead in the Netherlands
On March 22, the committee for Economic Affairs and Climate (EZK) will meet for a special committee debate on the security of our gas supply. The short-term measures that will be discussed include stricter regulations for gas storage facilities, extra supplies of LNG and extra gas production in the Netherlands. In addition, in May the government will present a plan to accelerate energy transition in the longer term and how this can be financed. If the ambitious targets are to be achieved and the pace of change accelerated, all hends will have to be on deck.
The government has a key role to play in accelerating the energy transition. During the aforementioned roundtable, almost all of the invited parties stressed that the government should take the lead: regulate and facilitate, was the request. So one thing is certain – the government should optimally enable the market to facilitate the energy transition as quickly and effectively as possible.
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