Will investment in renewables take a leap forward due to the Russia-Ukraine crisis?
Vladimir Putin’s February invasion of Ukraine has instigated both a human and energy catastrophe. In the European Union, Russia is the largest supplier of gas, crude oil, and coal, accounting for 45%, 27% and 46% of imports respectively, and Putin is using Russia’s stranglehold over fossil fuels as a political and economic weapon in the war in Ukraine.
This has demonstrated to many European countries the need to diversify their energy supplies away from Russian sources. However, this diversification can take many forms, from the growth of fossil fuel imports from elsewhere to increased investment in renewables. These options have vastly different consequences for purchasing nations with their cost and security. As a result, countries are pursuing various approaches, creating contrasting effects for global investment in renewables.
Nations within Europe have opted for a policy of less reliance on fossil fuels overall in years to come, and therefore, there is constant investment into the growth of renewables for the future. However, before the Russia-Ukraine crisis, global progress towards reducing reliance on fossil fuels was at a snail’s pace. The development of wind and solar projects was 30% below what was needed to achieve the world’s climate target this decade.
As a result, this conflict has been promoted as a catalyst for developing renewables, particularly within those European countries affected. This new European stance was summed up by Frans Timmermans, the Executive Vice-President for the European Green Deal, who stated Europe’s need to “dash into renewable energy at lightning speed” as “Putin’s war in Ukraine demonstrates the urgency of accelerating our clean energy transition”.
This was later reflected in the EU’s new strategy of a requirement of a 37% reduction in fossil fuel use by 2030 and, in particular, halving the current supply of 40% of European natural gas from Russia next year. This reduction opens the market to investing in new forms of energy supplies and, as a result, focus will shift towards renewables in order to help meet the fossil fuel reduction requirements. This may be in the form of either wind, hydroelectricity, solar, or other renewable energy sources.
We can already see such increased investments in renewables through the actions of Germany, a global leader in investment in renewable energy. Germany recently approved additional spending on accelerating green infrastructure, amounting to a total of $68 billion. This will not only help improve their energy security, but also renew momentum in the drive towards sustainable energy.
On top of this, those countries outside Europe reliant on Russian resources, such as China, may also be looking elsewhere for their energy supply. China’s foreign minister, Wang Yi, described his country as Russia’s “most important strategic partner”; much of this relationship is based on their trade agreements. China received 32% of all Russian crude exports in 2020 and 17% of its exports of liquified natural gas. Yet, given the new and continuous sanctions that are being placed on Russia, China has been placed in a tough position.
The nation wants to see Russia survive these sanctions to teach the US and their allies that they are not a magic weapon, but China is equally anxious to protect their own interests.
If it comes to blows with America, China wants its financial system to be shielded. As a result, we may see China diversifying away from Russian dependence to protect its economy, opening the opportunity to invest in renewable sources. However, there has been very limited evidence of diversification so far. Thus, it is possible China takes the opposite course of standing up to sanctions and increasing transactions with Russia, propping up their economy instead of withdrawing.
Furthermore, industry as a whole also shows potential to move towards sustainability as a result of Putin’s invasion. This is seen in the automotive industry as, with rising petrol prices, the total cost of ownership of an electric vehicle relative to an internal combustion car improves, more than offsetting the impact of rising battery prices. As a result, there is expected to be a surge in growth in the EV market in 2022 and beyond.
The Russia-Ukraine crisis has stimulated a general desire for countries to gain energy independence. For many European countries, the situation has led to a need for immediate action. However, the technology required for renewable energy generation is more advanced than that for the extraction and refining of fossil fuels; it is not only expensive but also time-consuming to transition to renewables.
Thus, those looking for an immediate solution may choose to double down on cheaper fossil fuels. This was demonstrated when Boris Johnson visited Saudi Arabia to encourage increased output of oil to lessen reliance on Russia and avoid a 1970s-style energy crisis and uncontrollable inflation. Oil prices had been trading at a 14 year high of close to $130 a barrel after the Russian invasion of Ukraine, fuelling the UK’s cost of living crisis.
Furthermore, this inability of renewables to fill the gap in the energy market in the immediate future has led to states adapting the rules on how different energy supplies are classified to allow enough energy to be supplied while remaining within climate targets. The EU passed the Taxonomy Complementary Climate Delegate Act, also known as the “green energy plan,” which controversially states that natural gas projects and nuclear energy should count as “green” under certain conditions. This demonstrates the difficulty of achieving both energy independence and clean energy goals.
This myopic planning to find affordable supplies of energy may for the short-term due to the crisis may even lead to a reversion to the least environmentally-friendly fuels. Such avenues can come in the form of once very significant and environmentally harmful trades that are now diminishing, such as the burning of coal. “The high gas prices being seen in the market will in any case create an economic incentive for generators to shift from gas power stations towards coal,” said Richard Howard, the research director at Aurora Energy Research. He discussed how “the decision may be taken by private-sector companies with coal-fired power stations that were recently closed or scheduled to close and could be brought back on stream quickly.”
Such a desire for this coal was demonstrated when, in Australia, calls came from pro-coal members of the federal government for Australia to pause its plan for net-zero carbon emissions by 2050, showing just how far harmful fossil fuels may be prioritised over greater investment in renewables due to short-term supply shocks.
In conclusion, the energy security crisis that has arisen due to invasion of Ukraine should theoretically be a perfect time for a hastened global transition to renewables. Some in Europe have been using the invasion as a catalyst for investing more into renewables for the long-term in order to increase energy security while meeting climate regulations. However, the evidence suggests, in the short term, this will not be universal, as the cheaper, more accessible, and faster energy supply of fossil fuels are more attractive to stabilise the economic effects. Overall, the future for global investment in renewables has improved as a result of the Russian invasion of Ukraine, but it is still a mixed bag of outcomes.
“Will China help Russia?”, The Economist, The Stalinization of Russia. p.11. Available online at: https://www.economist.com/leaders/2022/03/12/will-china-offer-russia-financial-help