Coal phase-out, climate change, sector coupling: The briefing for the energy and climate sector. For decision makers
The current threat of a Russian gas supply freeze is dominating the political debate. Horror scenarios are painted on the wall, even mass unemployment and yellow vest protests are talked about. The excited threat scenarios cover – intentionally or unintentionally – some of the challenges that we are facing anyway.
We are at the beginning of a decade in which, with high energy prices, a war in Europe, shortages of raw materials, a shortage of skilled workers and inflation, we have to shape what is probably the most radical restructuring of the economy that mankind has experienced since industrialization.
Despite these immediate challenges, it is now important to set new directions with foresight. In particular, we need to rethink our partnerships and trade relationships. Because Russia’s attack on Ukraine is accelerating the erosion of the rules-based world order and thus the basis of globalization.
A power-based world order, in which the law of the strongest applies, is increasingly taking its place. So we must be prepared to defend our freedom. Defense capability is getting a new priority – in government spending, but also in people’s minds. In addition to the army, economic strength and the resilience of the economy and society also play a decisive role in defence.
It is clear that we must radically reorganize our relations with Russia. China is also changing its strategy towards the West, partly under the guise of the corona pandemic. Therefore we have to reduce our dependence on experts in China and on processed critical raw materials that we source from there.
For example, the success of the transformation to climate neutrality depends on access to critical raw materials. All of this will change the cost structures in Germany. Energy independence from Russia means, for example, that the prices of fossil fuels, especially gas, will not return to their original levels in the medium term.
In this difficult situation, there are now challenging decisions to be made. It is undisputed that renewable energies and the necessary transport infrastructure should be expanded as quickly as possible. We have to think in European terms in order to jointly leverage the greatest possible potential for energy security on the continent.
But we are also facing a comprehensive transformation of industry and conventional power generation, which relies on gas as a bridging technology. That’s a lot more challenging.
Where will we get gas from in the future and at what price? Should we actually phase out coal-fired power generation by 2030? Who will then build the necessary gas-fired power plants? And where does the climate-neutral hydrogen come from that is supposed to replace gas in the long run? Here we will be dependent on extensive imports.
If you travel to Australia, Norway or the Middle East, for example, you learn that these countries can supply us with renewable energies in the future, in the form of hydrogen or energy sources based on it, by ship or pipeline. In addition, investors are ready to finance major projects and the development of transport routes. But all this will only get going if we conclude long-term and large-volume supply contracts.
Far-reaching decisions must therefore be made in order to initiate the import of renewable energy sources. Government support will be needed to close the initial gap between the procurement costs of climate-friendly hydrogen and the willingness to pay of European customers. This also applies to the initiation and securing of contracts.
In addition to countries that want to export renewable energy sources instead of fossil energy today, there are others that are predestined to export renewable energies, for example in Africa or South America. In order to be able to develop and develop many new energy partnerships, European cooperation is essential.
Because every partnership must be accompanied by the agreement of large import volumes in order to use economies of scale and keep energy costs low. Diversification of the supply relationships of individual European countries works better with joint procurement in the network and correspondingly greater demand.
So there is considerable potential in energy supply to reduce our dependencies. Will we be able to focus on “friendly” states? Considerable doubts are appropriate. While almost 29 percent of the world’s population still lived in western industrialized countries in 1950, in 1998 it was only 18 percent. In 2050, Europe and North America will be home to less than 12 percent of the world’s population.
Do we really want to decouple ourselves from much of the world and lose power and influence alongside economic losses? This could ultimately lead to geopolitical crises and conflicts becoming more likely.
The division of the world into “friend” and “enemy” is also thought to be too static and ignores the complexity of international relations. On the contrary, instead of decoupling ourselves, we should reduce one-sided dependencies by diversifying our trade relations and make it attractive for as many countries as possible to work with us on the basis of a rule-based world order.
However, this will not succeed if we try to impose our values on them. Rather, what is required is cooperation at eye level.
Based on new energy partnerships, further forms of cooperation are certainly conceivable. The development of these new supply chains and the expansion of the energy supply could take place in cooperation with European companies. In addition, based on the energy partnership, trade relations should be intensified to the benefit of both parties.
In global competition, not least because of the propaganda of autocracies, it will not be taken for granted that our social model will be extremely attractive. However, a look at history suggests that societies in which people can trust that they will reap the fruits of their labor are more successful than those that plan centrally and only demand performance from people.
We should build on these strengths, which make us an attractive partner in the world, in all challenges. Despite the reorganization of the world after Putin’s war, we must not lose sight of the fact that global public goods such as health or climate protection are becoming increasingly important. Multilateralism is therefore more important than ever.