Commentary Europes recent electricity price surge inevitable if it wants green energy

BARCELONA: The European Green Deal aims to reduce Europe’s greenhouse gas emissions to net zero by 2050, not least through decarbonisation of the energy sector.

But while Europe wants to be a global leader in the fight against climate change, the question is whether it can achieve its goal and at what cost. The task is formidable and the obstacles are daunting.

The COVID-19 crisis demonstrated the scale of the changes needed to reduce carbon usage massively. Consumers and politicians want to avoid such a shock by phasing in stable supplies of cheap, green energy.

Good policy and technological progress will bring that objective within reach. But, for now, there are trade-offs.

Because carbon must be taxed sufficiently to account for the negative climate externality it generates, the price of carbon dioxide emissions must go up, which will make electricity more expensive.

That, together with an increase in natural gas prices, is why Europeans have experienced a recent surge in wholesale electricity prices.

POLITICAL HEFT OF ENERGY

The political consequences of this development were foreshadowed in the 2018-19 “gilets jaunes”, or yellow vests, revolt in France, which was a response to only a moderate increase in fuel taxes.

Europe must import most of the natural gas it needs. But to guarantee a secure supply, it puts itself at the mercy of countries like Russia and Algeria, which tend to use their gas resources geopolitically against Ukraine and Morocco respectively.

Russia supplies one-third of the gas Europe needs and is pushing to activate Nord Stream 2, a pipeline to deliver supplies directly to Germany, bypassing Ukraine.

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