European energy and European climate policies, although often portrayed as being two sides of the same coin, are still not sufficiently harmonised, writes Stefan Bößner, Research Fellow at the Stockholm Environment Institute. The EU’s new LNG and gas storage strategy serves as a prime example where EU energy security concerns work against climate protection efforts. The strategy is likely to lead to costly investments into infrastructure which may not be needed and which come at the cost of other options to enhance climate protection and energy security.
The European Union often claims leadership on climate change. The EU not only saved the Kyoto Protocol by convincing Russia to join but also pushed for an ambitious climate agreement prior to the Paris Climate Conference (COP 21) last December. It is the only developed economy of comparable size that sources 26% of its energy needs from low-carbon sources and its 2030 goals to reduce emissions by 40% are among the most ambitious in the world. So far so good.
The European Commission acknowledges the importance of “avoiding the ‘lock-in’ of high emissions infrastructure and assets.” But tis is exactly what might happen when one looks at the EU’s recent LNG and gas strategy
But despite those ambitions, the EU is likely to miss its contribution to limit global warming to two degrees (as decided upon in the Paris Agreement). And while some member states demand to raise the EU’s climate ambitions others refuse to do so, illustrating existing frictions between EU and member state policy making. But the EU itself is not without fault either. The European Commission also pursues conflicting aims sometimes in its climate and energy policies.
In principle there is no reason why climate and energy policies should not work well together. With regard to climate change policies, the EU aims to achieve a low-carbon economy by 2050 by cutting its emission by 80%-95, while its energy policy is pursued with the three pronged approach of security of supply, competitiveness and decarbonisation. The recent Energy Union project – set to streamline individual member states’ energy policies which are often pursued out of national interest instead of mutual solidarity – even calls itself a “framework strategy for a resilient energy union with a forward looking climate change policy.”
However, the Commission’s recent EU strategy for liquefied natural gas (LNG) and gas storage is an example of a policy initiative that contradicts the EU’s climate ambitions as evidenced by its Communication concerning the Paris Agreement.
On the one hand, the European Commission acknowledges the importance of “avoiding the ‘lock-in’ of high emissions infrastructure and assets.” One the other hand, this is exactly what might happen when one looks at the EU’s recent LNG and gas strategy.
If the controversial Nord Stream 2 pipeline would come on stream, it would dump additional volumes on an already tepid market which would put further doubts on the economic viability of additional LNG projects
In the new strategy, the Commission praises LNG as “major opportunity” for the EU to enhance its energy security since most of Europe’s gas imports reach markets via pipelines which originate mainly in Russia, a country which has long been the source of energy and geopolitical headaches. The EU has made some significant progress (and continues to do so) in boosting its gas security by assuring pipeline reverse flow capacities or tasking member states with having emergency plans in the case of supply cuts. But import dependency on Moscow remains high and a fully integrated internal energy market unachieved.
It is therefore understandable to look to other options such as LNG to satisfy European energy security needs. But while the new LNG strategy acknowledges the need to further integrate energy markets, to streamline regulation and to make use of existing gas infrastructure, it also recommends new investments based on a list of projects of common interest (PCI). And this is where it gets tricky.
First, those developments would come at a certain cost. The Commission foresees a need of € 5 billion for the projects mentioned in the LNG strategy alone. Moreover, the European Network of Gas Transmission operators (ENTSOG) foresees 39 additional LNG projects up to 2025 while Gas Infrastructure Europe indicates planned LNG terminals would boost the EU’s regasification capacity to 324 bcm by 2020, which would be almost equivalent to all European gas imports in 2014 which amounted to 346 bcm.
Building more gas infrastructure than absolutely needed is likely to contribute to a carbon lock-in where future fossil fuel developments are favoured over low-carbon technologies in Europe
Are these investments necessary? With its current LNG import capacity of about 195 bcm the EU can already source more than 50% of its annual gas imports from LNG. Currently, the utilisation rate of this infrastructure has fallen to 14% in 2014 meaning that most of it remains unused. Nevertheless, the Baltic states, which consumed 3.6 bcm of gas in 2014, are already planning to construct an additional 11.5 bcm of annual LNG capacity while simultaneously a € 558 million pipeline is scheduled to be built between Poland and Lithuania to alleviate the region’s energy dependency on Russia. In times of recession it is questionable whether this type of investment in more assets is wise, especially if one wants to avoid lock-in of high-emission infrastructure.
Second, there is great uncertainty about the future of European gas demand . For years, natural gas consumption in Europe has been declining. There are several reasons for this, including fierce competition from cheap coal. Some analysts foresee a bullish LNG market in the future, but one has to keep in mind that forecasts are complex matters and often don’t anticipate the future well. The International Energy Agency’s (IEA) constant underestimation of renewable energy potential serves as one example, the EU’s own overestimation of gas demand as another. If the controversial Nord Stream 2 pipeline would come on stream, it would dump additional volumes on an already tepid market which would put further doubts on the economic viability of additional LNG projects.
And third, there is the environmental question. The focus on gas would not in itself be so bad, if increased use of gas would help the EU realise its climate ambitions. But this is far from being the case. As our work at the Stockholm Environment Institute (SEI) shows, the environmental benefits of gas, generally less CO2 intensive than coal, depend significantly on the sectors it is used in and which fuel it replaces. For example, benefits from replacing gasoline and diesel with LNG in the transport sector – as foreseen by the EU Commission’s LNG strategy – might even lead to no significant CO2 savings depending on local circumstances. And as long as coal and ETS prices remain low, the biggest savings potential of replacing coal fired power with gas is easier in theory than in practice. Thus,
Building more gas infrastructure than absolutely needed is likely to contribute to a carbon lock-in where future fossil fuel developments are favoured over low-carbon technologies in Europe. In the wake of the Paris agreement and the realisation that more has to be done to limit global warming to 2 degrees (let alone 1.5 degrees) it is therefore doubtful whether the new European LNG and gas storage strategy will help European climate policy.
Member states might think about whether their mainly national energy policies really provide the needed climate protection and energy security in the long term or whether the clout of 28 nations united in solidarity is a better hedge against supply disruptions and a changing climate
What can be done to align climate and energy policy better?
As a first step, the EU and its member states could move away from seeing energy security only through the gas prism. As the European Commission rightly points out, energy efficiency measures and a better integration of the European energy market with the right pricing mechanisms would already enhance EU energy security.
Furthermore, increasing the share of renewable energy, while not without challenges, contributes to energy security since unlike externally imported energy sources, renewables do not depend on foreign suppliers. Europe has the legal and technical know-how to integrate intermittent renewables into the internal electricity market by increasing flexibility, facilitating cross-border trade and pro-active demand side management. In doing so, enhancing energy security would come with the added benefit of mitigating climate change and bringing energy and climate policies closer together.
As a second step, member states might think about whether their mainly national energy policies really provide the needed climate protection and energy security in the long term or whether the clout of 28 nations united in solidarity is a better hedge against supply disruptions and a changing climate. After all, it was European internal market rules which challenged Russian state owned player Gazprom (still the dominant player in European gas markets) and the EU’s security of gas supply provisions have made the EU more resilient to supply shocks. A more cooperative approach to security of supply would therefore make some infrastructure investments unnecessary and save a significant amount of CO2.
Finally, the EU and its member states might consider that it is in their benefit if they assumed their climate leadership once again. They can regain their leadership role by consequently integrating climate change mitigation strategies into other policy areas. Europe can’t wean itself off gas in the short term and strategies have to be in place to deal with this dependency. However, when those strategies work against effective climate policies and are pursued despite other options (increasing energy efficiency, strengthen the internal energy market, boost renewable energy output) being available, they risk to neither enhance European energy security nor climate protection.
Stefan Bößner is a research fellow at the Stockholm Environment Institute (SEI), Oxford office. He focuses on European climate change and energy policies as well as European and international energy transitions.
For another critical look at planned LNG and gas infrastructure investment in Europe, see this report published on 3 March by E3G, RAP, WWF, Agora Energiewende and European Climate Foundation.