The European Union (EU) has set ambitious goals for the transition to renewable energy and the reduction of greenhouse gas emissions. The EU’s current target is to achieve a 55% reduction in greenhouse gas emissions by 2030, compared to 1990 levels, and to reach climate neutrality by 2050.
To achieve these goals, the EU has implemented several policies and initiatives to promote renewable energy and energy efficiency. These include:
- the EU Renewable Energy Directive, which sets binding national targets for the share of renewable energy in the EU’s final energy consumption,
- the EU Energy Efficiency Directive, which sets binding national targets for energy savings and requires member states to develop energy efficiency plans,
- the EU Emissions Trading System, which is a cap-and-trade system designed to reduce greenhouse gas emissions from industry and power sectors,
- the EU’s Horizon Europe program, which provides funding for research and innovation in renewable energy technologies,
- the EU’s Just Transition Fund, which provides financial support to regions and communities that are most affected by the transition to a low-carbon economy.
The energy transition in the EU is progressing, but there is still much work to be done to achieve the EU’s climate goals. According to a report by the European Environment Agency, the share of renewable energy in the EU’s final energy consumption increased from 8.5% in 2004 to 18% in 2018. However, the rate of increase has slowed in recent years, even slightly declining in the last two years, resulting in the goals for renewable energy not being on track to achieve its 2023 target. All member states, especially large energy consuming states, are going to have to put much more effort into achieving EU’s old goal of 32% by 2030, let alone new ambitious plan to REPowerEU.
REPowerEU, newest and most ambitious plan yet published by the European Commision on 18 May 2022, has moved the bar once again and set new goals for 2030 at 45%. REPowerEU is about rapidly reducing European dependence on Russian fossil fuels by fast forwarding the clean transition and joining forces to achieve a more resilient energy system and a true Energy Union.
It builds on the full implementation of the Fit for 55 proposals tabled two years ago without modifying the ambition of achieving at least -55 % net GHG emissions by 2030 and climate neutrality by 2050 in line with the European Green Deal.
In the new image of reality, the EU hopes that gas consumption will reduce at a faster pace, limiting the role of gas as a transitional fuel. However, it recognizes that shifting away from Russian fossil fuels will also require targeted investments for security of supply in gas infrastructure and very limited changes to oil infrastructure alongside large-scale investments in the electricity grid and an, optimistically speaking, EU-wide hydrogen backbone. In parallel, some of the existing coal capacities might also be used longer than initially expected, with a role for nuclear power and domestic gas resources too. It seems that the EU is scrambling all efforts into leaving Russia as a supplier while utilizing all available resources to do so.
The influence of conflict between Ukraine and Russia
The war between Ukraine and Russia has some influence on the energy transition in the EU, particularly with respect to the supply of natural gas. Ukraine is an important transit country for natural gas pipelines that transport Russian gas to the EU. The conflict between Ukraine and Russia has led to disruptions in gas supplies in the past, as that risk came true again in the last year.
The EU is highly dependent on natural gas imports, with over 40% of its gas supply coming in the past from Russia. The dependence on Russian gas has continually been a concern for the EU, as it creates vulnerability to supply disruptions and geopolitical risks.
To reduce this dependence, the EU has been working for years with its partners to diversify its gas supply sources and routes. This includes the development of new gas pipelines from other countries, such as the Southern Gas Corridor (SGC), which transports gas from Azerbaijan to the EU. The conflict between Ukraine and Russia will definitely have implications for the future development of new gas pipelines and the diversification of gas supply sources.
The EU has historically been working to develop a strategic partnership with Russia, particularly with respect to energy cooperation. However, the conflict has led to a deterioration of relations between the EU and Russia, with implications for energy cooperation and other areas of trade and cooperation.
After the EU has implemented economic sanctions against Russia in response to its annexation of Crimea and involvement in the conflict in eastern Ukraine, these sanctions have had a significant impact on trade between the EU and Russia, particularly in the energy sector. This has led to increased energy prices in some EU member states and may have affected the competitiveness of some, more energy intensive EU companies.
Risk aversion tactics were employed by all, not only European Commission
Key actor in this regard has been the European Commission, which has worked to develop a number of energy security initiatives and policies aimed at ensuring a reliable and affordable supply of energy for EU member states. These initiatives include measures to increase energy efficiency, diversify energy sources and supply routes, and promote the development of renewable energy sources.
Another important actor has been the EU’s energy industry itself, which has invested heavily in developing new infrastructure and technologies to improve energy efficiency and diversify supply. Expeditious construction of new liquefied natural gas (LNG) terminals in Europe has helped to increase the availability of natural gas and reduce dependence on pipeline imports.
Finally, individual EU member states have also taken steps to improve their own energy security, including by developing their own domestic energy sources and diversifying their energy imports. Some countries have keenly invested in renewable energy sources such as wind and solar power, while others have explored the potential of shale gas and other unconventional sources.
Defense manufacturing opportunities for some, but not for all
The war between Ukraine and Russia has had mixed impacts on European defense manufacturers.
On the one hand, the conflict has fueled concerns about security and led to increased military spending in some countries, which could benefit defense manufacturers in Europe. Countries such as Poland, Romania, and the Baltic states (Estonia, Latvia, and Lithuania) have increased their defense spending in response to the conflict, and this has led to increased demand for defense equipment and technologies.
Since the conflict intensified in February 2022, large majority of EU members started renewing their own defense capabilities.
Some European defense manufacturers that had previously exported products to Russia have had to find new markets for their products or diversify their offerings to compensate for the loss of business with Russia.
Challenges faced by the EU aerospace industry
The conflict between Ukraine and Russia has had an impact on the aerospace industry in the EU, particularly in the defense and space sectors. Some EU companies in these industries had partnerships with Ukrainian companies, which were disrupted by the conflict. In addition, the conflict disrupted supply chains for some key components, such as titanium and other metals used in aerospace manufacturing.
In addition to titanium, the conflict between Ukraine and Russia disrupted the supply chain for other metals used in aerospace manufacturing, such as aluminum, nickel, and cobalt. These metals are used in various components of aircraft, including engines, airframes, and landing gear. The disruptions to the supply chain caused by the conflict created challenges for some EU companies in the aerospace industry, particularly those that relied on Ukrainian or Russian suppliers for these metals.
Automotive sector takes damage from raw materials shortage and supply chain disruption
Sanctions particularly affected European automotive manufacturers, which had previously exported a significant amount of vehicles and parts to the Russian market. In response, some manufacturers have had to shift their focus to other markets, such as China or India.
Another impact has been on supply chains, particularly with regard to the availability of raw materials such as steel and aluminum. The conflict has disrupted trade routes and created uncertainty in the region, which has affected the availability and cost of raw materials used in automotive manufacturing. This has led some European automotive manufacturers to look for alternative suppliers or to consider changes to their supply chain strategies.
Managing agrochemicals is an ongoing problem
In recent year, the EU has taken steps to mitigate challenges of agricultural chemicals and promote the sustainability of the industry in the long term with more than average result.
Major approach has been to diversify supply sources for key raw materials used in the production of agrochemicals. The EU has increased imports of potash from other sources such as Canada, Belarus, and Israel, to reduce its reliance on imports from the region.
Although Belarus is under sanctions for human rights violation, the sanctions imposed upon Belarus do not include a ban on the import of potash or other raw materials. Over 2 million tons of potash from Belarus was imported last year, making it the second-largest source of potash imports for the bloc after Russia.
The EU has also encouraged the development of alternative sources of raw materials within the bloc, such as by supporting investment in potash mining in Spain.
Future-proof approach has been to support the development of sustainable and environmentally-friendly alternatives to traditional agrochemicals. The EU has implemented strict regulations on the use of pesticides and fertilizers, with the aim of reducing their environmental impact and promoting the use of safer alternatives. Use of biopesticides and organic fertilizers is promoted as an alternative to synthetic products, which will help reduce reliance on imported raw materials.
Petrochemical Predicament
Petrochemicals are chemical products derived from petroleum or natural gas. They are an essential component in the manufacturing of a wide range of products, including plastics, textiles, and synthetic fibers. The production of petrochemicals is a complex process that involves refining crude oil or natural gas to produce a variety of intermediate products, which are then further processed to produce a range of end products.
Russia is one of the world’s largest producers of crude oil and natural gas, which makes it a key supplier of petrochemical feedstocks to the EU. The most important petrochemical feedstocks produced by Russia are ethylene, propylene, and benzene, which are used in the production of a range of products including plastics, coatings, and synthetic fibers.
Ukraine is also an important supplier of petrochemical feedstocks to the EU, particularly ammonia and nitrogen fertilizers, which are produced from natural gas. These chemicals are used extensively in the EU’s agricultural industry.
Disruptions to the supply of petrochemical feedstocks from Ukraine and Russia has had a significant impact on the EU’s manufacturing industry. Disruption to the supply of these chemicals caused price increases and shortages, the likes of which we are seeing recently all over Europe, which could in turn impact the competitiveness of EU businesses. This is particularly true for industries that rely heavily on petrochemicals, such as the plastics industry. The ongoing tensions between Ukraine and Russia have led to concerns about the stability of the EU’s supply chain for petrochemicals and other critical raw materials.
Europe’s threefold solution: new sources, new technologies and domestic production
One approach has been to look for alternative sources of natural gas, which is a key feedstock for petrochemicals. The EU has been exploring and using the potential of liquefied natural gas (LNG) imports from other regions, such as the United States, Canada, and Australia. This lead to diversification of the EU’s supply of natural gas and reduced its dependence on Russia.
In addition, the EU has been investing in renewable energy sources and developing new technologies for the production of petrochemical feedstocks from biomass and waste materials, for which the EU has been funding research and development projects focused on the production of bio-based chemicals, produced from renewable feedstocks such as vegetable oils and cellulose.
Final approach has been to increase the EU’s domestic production of petrochemicals. This includes investing in new production facilities and upgrading existing facilities to increase efficiency and reduce costs. The EU has also been exploring the potential of shale gas, which is a controversial source of natural gas that is extracted through hydraulic fracturing.
Did Europe manage to dodge a bullet this time?
While the conflict between Ukraine and Russia did create challenges for the EU in terms of its supply chain for certain chemicals and petrochemical feedstocks, the EU has managed to avert a full-blown crisis. Through a combination of diversification of supply sources, investment in alternative feedstocks, and increasing domestic production, the EU has been able to mitigate the impact of any disruption to the supply chain from Ukraine and Russia.
However, it is worth noting that the situation remains fluid, and ongoing tensions between Ukraine and Russia could still impact the EU’s supply chain in the future. Additionally, the impact of the conflict has been felt in other areas, such as the aerospace and defense industries, as well as the agricultural sector. Therefore, while the EU has taken steps to address the challenges caused by the conflict, the situation remains complex and requires ongoing attention and management.