bneGREEN: Scramble to replace Russian gas endangers climate change targets

bneGREEN: Scramble to replace Russian gas endangers climate change targets
Fossil fuel power plant / German Environment Agency
By Richard Lockhart in Edinburgh March 22, 2022

Russia’s invasion of Ukraine has pushed the questions of decarbonisation and energy security up to the top of the political agenda as governments scramble to find alternatives to Russian oil and gas.

The immediate reaction in the EU has been to accelerate the energy transition by strengthening and extending its commitment to the Green Deal and to turn away from Russian gas and oil in a rapid U-turn that could not have been expected before the war began on February 24.

The energy price shocks caused by the war – wholesale gas prices have risen by 10 times – have concentrated minds on how to secure alternative energy supplies and how to replace imports of Russian oil and gas.

The EU imports 90% of its gas consumption, with Russia providing around 45% of those imports, in varying levels across Member States. Russia also accounts for around 25% of oil imports and 45% of coal imports.

Although the EU has stepped up its commitments to its Green Deal targets, it has warned that these will come at considerable costs in terms of retail energy prices for consumers.

Meanwhile, the immediate move away from Russian gas has caused governments to look at nuclear power and LNG imports as one long-term solution alongside renewables. Yet some generators have not ruled out using coal as a short-term fix to fill energy gaps.

The race to find alternatives to Russian gas runs the risk of failing to meet, or delaying, the COP26 climate change goals, particularly net zero by 2050 and global warming limits.

 

Utter madness

UN Secretary-General António Guterres warned on March 21 that such short-term measures were “madness,” and could threaten the 1.5C target for global warming agreed at COP26, as governments scramble to secure energy supplies in the face of a 10-fold rise in gas prices and a doubling in oil prices.

The Paris Agreement's commitment to limit global warming to 1.5C is on “life support,” he warned.

“As major economies pursue an ‘all-of-the-above’ strategy to replace Russian fossil fuels, short-term measures might create long-term fossil fuel dependence and close the window to 1.5C,” he said.

“Countries could become so consumed by the immediate fossil fuel supply gap that they neglect or knee-cap policies to cut fossil fuel use,” he went on. “This is madness. Addiction to fossil fuels is mutually assured destruction.”

The UN secretary-general said in a tweet that the war in Ukraine also showed how the global addiction to fossil fuels is placing energy security, climate action & the entire global economy at the mercy of geopolitics.

Global emissions rose by 6% in 2021 to a record high of 36.3bn, more than offsetting the pandemic-induced decline seen in 2020, the International Energy Agency (IEA) said.

Guterres warned: “If we continue with more of the same, we can kiss 1.5C goodbye. Even 2C may be out of reach. That would be catastrophe.”

 

Immediate concerns

As the war began on February 24, there were immediate concerns that it could derail the fight against global warming and climate change as energy prices soared.

Andrew Freedman of the think-tank Axios warned that the Paris Agreement temperature target was perilously close to slipping out of reach, as climate change was no longer top of the political agenda.

US climate envoy John Kerry also warned before war broke out that the world was losing focus on emissions and mobilising green investment, suggesting that it would easily fail to keep up the pace required to meet 2050 targets.

 

Coal’s return

There have been hints from governments and companies that coal could be the fuel to replace gas immediately.

The IEA admitted that coal could be used to displace large volumes of gas relatively quickly, even if it was costly.

Poland, for example, had banked on gas to replace coal as it advanced its coal phase-out. Poland plans to reduce coal’s share in the mix to no more than 28% by 2040 and zero by 2049. Any efforts to cut imports of gas would mean Poland would need to rethink its reliance on the fuel, with coal, nuclear and imported LNG and pipeline gas all possible replacements.

"If we want to do that in the short term, we're going to have to reconsider the plans we forged in the past. Looking at Poland's current legislative situation, it's pushing us very clearly towards more consumption of gas," Polish Climate Minister Adam Guibourge-Czetwertynski told a meeting of EU environment ministers in Brussels, Reuters reported.

"We're looking at that again to see how we can reduce our dependence on gas during this transitional period."

Coal has strong advocates in Poland. “We have to start a real reactivation of coal extraction in Poland,” said former Polish Economy Minister Jerzy Markowski.

However, EU Green Deal Commissioner Frans Timmermans said earlier in March that although it might make sense for coal-dependent states such as like Poland and Germany to keep burning coal for longer, rather than switching to natural gas before converting to renewable energy, it would be “an incredibly stupid choice” to open new mines.

RWE has also warned that coal was still an option, and that coal generation could replace Russian gas

CEO Markus Krebber said that decommissioned coal plants could be upgraded to reserve status, worth a total of 3.5 GW, of in order to maintain security of energy supply in the winter of 2022-23 and in the following years.

Indeed, the state secretary at the German climate ministry, Patrick Graichen, said this week that Russian aggression on Ukraine has broken the narrative of gas as "a bridging technology," which means that more coal could be burned in the short term.

Yet any role for coal would risk slowing down the pace of change required to boost renewables, reduce fossil fuel consumption and pare back emissions growth in the coming years.

Elsewhere, Belgium could extend the working lives of some its nuclear reactors by 10 years from 2025, alongside an increase in offshore wind and solar.

 

Economic effect

 

Emissions could also suffer as global attention moves from the green agenda towards stemming economic decline and dealing with geopolitics and security in a bid to end the war in Ukraine.

For example, Oxford Economics cut its GDP forecasts for CEE countries by an average of 1 percentage point (pp) for 2022 and 0.5pp for 2023.

Meanwhile, the OECD warned that the war will have major economic and social consequences on its members, although it offered hope by suggesting that boosting green energy and diversifying away from Russian fossil fuels was needed to soften the blow.

It added higher LNG imports and nuclear power to its list of alternative energy sources, alongside renewables and bioenergy, again spelling bad news for climate change and emissions reduction.

 

EU targets

The EU has moved more cautiously than governments, and has as yet failed to adopt any EU-wide energy sanctions on the US or UK model, instead setting targets to reduce imports via demand reduction. Member state themselves, especially in Central and Eastern Europe, are divided on sanctions.

Before the war, the EU had instead set a target of ending dependence on Russian gas by 2030 by reducing imports of Russian gas by 100bn cubic metres per year – or two thirds of current imports.

However, in response to the war the EU on March 8 that it would raise this figure to 155 bcm via its REPowerEU programme, with the first 100 bcm of this being achieved in 2022.

However, it is open to question whether the EU would able to meet these aspirations, with the IEA saying only 50 bcm of Russian gas can be replaced in 2022, rather than the EU’s 100 bcm.

Part of the EU’s plans are eminently achievable, while others are more ambitious, according to the Oxford Institute of Energy Studies (OEIS).

The LNG and pipeline to replace 63.5 bcm of Russian gas is available, the OIES said, with cargoes redirecting from Asia to Europe, although European prices would need to remain high to attract such cargoes.

However, proposed 38 bcm reductions in gas demand, although feasible on paper, would be challenging.

A long list of policy reforms, good availability of wind and hydro, a warm winter and more coal nuclear would all be needed for any target to be met.

In short, the EU’s proposals will give coal a short-term boost, although it will also promote the energy transition in the longer term.

Despite these fears, international bodies such as the IEA have stressed that the war, as well as volatile gas prices, could act as a catalyst to quicken the decarbonisation agenda and reduce the world’s exposure to Russian gas and oil.

 

Russia’s options

Looking ahead, US President Joe Biden’s visit to Europe on March 24 could also lead to stronger calls from some EU leaders, especially in Eastern Europe, for tougher sanctions on Russian oil and gas, following on from the US ban earlier in March.

Meanwhile, Russia has already made noises that it could find alternative buyers of its oil and gas in China and India.

However, China has its own green targets to meet as it aims to reach net zero by 2060. Beijing’s commitment to reach net zero by 2060 could reduce the potential for Moscow to redirect its gas and oil exports away from Europe towards China. It will be neither quick nor easy for Moscow to pivot its energy exports from west to east, according to Wood Mackenzie.

Although any detailed picture of future emissions targets has yet to emerge, the continued presence of coal in Europe’s generation sector weakens Brussels’ rhetoric about reducing Russian gas imports.

As such, Europe, which has so far been the best performing continent in terms of emissions reductions, faces the prospect of a slowdown in its progress towards net zero, while at the same time facing the high cost of restructuring energy systems away from Russian gas and oil.

Given the pace required to reach net zero by 2050, any delays in emissions reductions caused by the war will have their own ecological and economic impact.

bneGREEN

Dismiss