September 23, 2021
In the face of a perfect storm of global factors, Europe is in the middle of an energy supply crisis that threatens to raise household electricity prices to unsustainable record highs this winter. National governments are already responding to shield consumers from the worst effects: Spain has moved to cap energy prices, while France and Italy are promising subsidies for households to help with soaring bills.
The causes of the situation are complex and intricately linked. As the world emerged from the pandemic earlier this year, demand for energy began rising dramatically, at the exact moment when gas stocks were low after an unusually cold winter and renewable energy production, especially wind, was lagging behind. As a result, European benchmark gas prices hit a record high of 79 Euros/MwH for October, an increase of over 250% since January. Analysts warn that the energy prices – and investor nerves – are likely to keep rising throughout the winter.
EU energy ministers are due to meet in Slovenia this week to discuss the crisis, with a blame game erupting ahead of the summit. Some national officials are calling for a more coordinated response from the EU. The Spanish Economy and Ecology Ministers have written to the European Commission arguing that, “member states should not need to improvise ad hoc measures every time markets malfunction”, and calling for common procurement of gas reserves and action on financial speculation on the EU carbon market.
Some in Europe are also angry at what they see as “market manipulation” by Russia, which supplies 41% of EU gas. Despite the shortfall, Russian state gas company Gazprom has refused to increase supply of natural gas this year. Over 40 MEPs have written to the European Commission demanding an investigation, accusing Gazprom of exerting political pressure to increase prices and force the German government to speed up approval of the Nord Stream 2 pipeline, which was completed earlier this month.
Others blame the increase in carbon prices due to the EU’s flagship Emissions Trading Scheme, which requires industrial and other polluting actors to buy permits for their carbon emissions. The carbon price recently topped 60 euros per metric ton for the first time ever, double the price at the start of the year, though it has since dropped back slightly. Some MEPs, as well as the Polish government, have been vocal about the knock-on effect this is having on energy bills. However, Frans Timmermans, the Vice-President of the European Commission in charge of implementing the European Green New Deal, said the increase in carbon prices only accounts for a fifth of the overall energy price rises.
Many see the situation as evidence that Europe should be moving faster in the transition to green energy. Speaking to the European Parliament, Timmermans argued that this crisis is exposing the dangers of reliance on imported gas, and urged lawmakers to support the hastening of the switch to renewables. This would also avoid the need to mix energy issues with geopolitics. A pipeline from Russia or anywhere else can be turned off at a moment’s notice for any reason, but states have no way of interfering with each other’s supply of sun or wind. Nonetheless, the EU currently has 87 billion Euros invested in future gas projects, and is looking to import its gas imports by 35%, according to a report from the Global Energy Monitor, calling into question both the commitment to the Green Deal, and its goal of net-zero emissions by 2050. Meanwhile, in the UK, despite earnest proclamations of the government’s environmental credentials going into the COP26 summit in Glasgow, officials seem to be reaching in the other direction, restarting a decommissioned coal plant to help bridge the country’s shortfall in energy, and raising questions about the country’s commitment to its green strategy in the process.
