Sustainability
T he Russian invasion of Ukraine has changed the world forever. It is not unique in this respect. There have been two similar ‘inflection points’ in the last 15 years alone. The first was the global financial crisis of 2008, while the second was the start of the COVID-19 pandemic in 2020. Though the pandemic is not over, the global economy was on the road to recovery during 2021. This was welcome news, but also created new challenges. Demand for fossil fuels surged as the world emerged from lockdown, triggering an energy price crisis as supply struggled to keep up. Then, in the autumn of 2021, as gas prices escalated, Russia started to cut back on pipeline supplies to Europe, making a difficult situation worse. Millions of Euros filled the Kremlin’s coffers, but the gas continued to flow, albeit at lower levels. Moscow’s motives became clear on February 24, 2022, when
Russia invaded Ukraine. Since then, Russia has weaponised Europe’s dependence on its gas exports. Most recently, in the face of missile attacks on its energy infrastructure, Ukraine’s President Zelensky has accused Russia of ‘energy terrorism’. Through the summer, a series of events reduced Russian gas flows to Europe, culminating in subsea explosions damaging the Nord Stream 1 and 2 pipelines in the Baltic Sea that are now out of operation indefinitely. According to the International Energy Agency (IEA), by the end of 2022, Russian pipeline gas exports to Europe are likely to be down 55 per cent. At the same time, the average EU gas price in 2022 will be almost eight times the five-year average between 2016 and 2020. While the outcome of the war in Ukraine remains uncertain, the West’s response will have a lasting impact on the world’s ability to take timely action on climate change. The implications for Europe’s climate change ambitions The need to accelerate climate action is greater than ever. As the
TO THE CORE
1. To meet the goals of the Paris Agreement and limit global warming to 1.5 degrees, greenhouse gas emissions need to fall by 45 per cent by 2030. 2. Plans to reduce Europe’s reliance on Russian oil and gas imports are likely to fuel a short-term surge in emissions as production from other sources accelerates. 3. Large new gas and oil projects will not solve the current crisis and could cause ‘carbon lock-in’. The no regrets solution
is a reduction in fossil fuel consumption in accordance with the REPowerEU plan.
4. Europe may be pursuing
greater energy security, but climate change is a global challenge that requires high levels of international cooperation to succeed.
The Intergovernmental Panel on Climate Change’s (IPCC) recent reports make clear, the window of opportunity to limit global warming to 1.5 degrees is closing fast. To meet the goals of the Paris Agreement, greenhouse gas emissions need to fall by 45 per cent by 2030. In November 2021, COP26 offered hope of a concerted push. For the first time, a COP closing statement included the need to ‘phase down’ fossil fuels. There have already been missed opportunities to do exactly that. The 2008 crisis put a short-lived crimp in the growth of carbon emissions. But, as the global economy recovered, so did emissions growth. All the indicators suggest the pandemic resulted in a similar dip in emissions. Again, that rebounded as economies recovered and emissions hit a record level in 2021. Both events were associated with extreme oil price volatility. Oil
prices peaked at $147 per barrel in 2008, only to fall to $35 by the end of the year. At one point in early 2020, the American benchmark oil price for West Texas Intermediate grade oil was -$40 per barrel; it recovered to $74 by the end of 2021. When US President Joe Biden announced a ban on Russian oil and gas imports on March 8, the price hit $124, and, at the time of writing, it is in the mid $90s a barrel and the Organisation of the Petroleum Exporting Countries have been cutting back on production to sustain high prices. The world of COP26 is gone, and COP27 is likely to highlight divisions between the Global North and South, rather than the solidarity needed to fund and deliver climate action with an increased emphasis on adaptation as temperatures continue to rise. Europe is now determined to move away from any reliance on
Russian fossil fuels. It is a challenge that should not be underestimated. Russia is the world’s second largest exporter of oil, after Saudi Arabia. It is also the largest exporter of natural gas and the third largest exporter of coal. In 2021, the EU imported 40 per cent of its natural gas and 27 per cent of its oil from Russia. According to data from the US Energy Information Administration, OECD Europe accounted for 49 per cent of Russia’s crude oil and condensate exports in 2021. It was also the destination for 74 per cent of Russia’s natural gas exports. Thus, Russia stands to lose its most important market for its oil and gas and it is already having to accept a significant discount in its exports to the likes of India and China. At present, the EU is not blocking Russian energy imports. But a ban on crude oil will begin in
“Europe may be embarking on a quest for greater energy security, but climate change action is a global challenge”
December 2022, with a ban on oil products to follow in
Warwick Business School | wbs.ac.uk
wbs.ac.uk | Warwick Business School
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