After the great energy crisis: Europe’s new landscape

On 14 June 2023, Bruegel Senior fellow Simone Tagliapietra gave a briefing to the US Senate Climate Change Task Force on Europe’s new energy and industrial landscape after the 2022 energy shock.

The slides prepared for the briefing can be accessed here. 

Europe defeated Putin’s weaponisation of gas supplies thanks to a mix of gas demand reduction and increased LNG imports. European gas and electricity markets are now calmer, and the continent is set for a safe winter ahead. However, prudence is due as gas price volatility might resume as the global LNG market remains tight. Keeping gas demand reduced and LNG imports high is key for Europe. Europe also managed to successfully implement a difficult oil embargo on Russia, which reduced EU payments for Russian oil from around €80 billion per year to around €8 billion. During this major energy reshuffle, European industry remained resilient, and managed to even increase in 2022 Y-o-Y output by around 4% while substantially reducing gas demand. This thanks to a mix of efficiency gains, fuel switching and higher imports of energy-intensive products. Moving forward, gas in Europe will likely be four times more expensive than in the US, versus two times before the crisis. This also puts an upward pressure on the cost of electricity in the EU. This represents a major source of concern for EU industrial competitiveness ahead. High energy prices led to a sharp acceleration of green alternatives in 2022, from solar panels (+25% Y-o-Y) to heat pumps (+48% Y-o-Y). Families and businesses understand these are key remedies to protect from volatile fossil fuel prices. Policies adopted at both the EU and national levels support this trend and will yield further results. REPowerEU (aimed at cutting dependence on Russian fossil fuels by 2027) focuses on energy efficiency and renewable energy acceleration (45% of final energy consumption by 2030 – up from 22% today), namely by focusing on permitting streamlining. Pandemic and Ukraine war pushed economic security at the top of EU policy agenda. Economic security and clean tech are now driving the EU agenda, with key open questions such as how to strike the right balancing act between economic efficiency and resilience, and how to distribute the cost of resilience. EU principles in this space include commitment to open trade, de-risking rather than decoupling, and a focus on international partnerships, starting with the transatlantic partner.