REPowerEU calls for reducing Russian energy imports by 65 percent over the remainder of this year and completely before 2030. This will require long-term investments in renewables and energy efficiency, as well as short-term measures such as purchasing non-Russian oil, liquefied natural gas (LNG), and coal; greater use of nuclear energy; and reducing energy demand by, for instance, encouraging consumers to lower home temperatures by one percent. The plan also aims to increase gas reserves to 90 percent of capacity, versus 30 percent currently, by Oct. 1 each year so as to improve the system’s resiliency.
It is up to each member state to decide how these goals will be reached. For example, Germany’s initial response was to bring forward its target of 100 percent renewable energy by more than a decade to 2035, a move which requires a €200 billion commitment to almost triple onshore wind and solar capacity, and more than double offshore wind. In the short term, Germany is considering prolonging the use of coal beyond 2030, and it announced plans to build two LNG terminals whilst bolstering gas and coal storage.
Many wonder if the new imperative of replacing Russian energy imports means abandoning the net-zero goal as the EU will need to reopen coal plants and rely on nuclear energy for a longer period of time. But the situation is not so clear cut, in our view.
Bloomberg estimates that burning additional coal instead of Russian gas would increase the EU’s carbon emissions by about eight percent. But it points out that as Europe isn’t planning to construct new coal power plants as part of its response to the crisis, any pollution created by new coal and oil imports could be offset by green replacements that will likely be scaled up. Still, boosting additional sources of gas, which European homes rely on for heat, and building the required infrastructure, such as the two proposed German LNG terminals, will lock in gas consumption for decades.
Most importantly, the green transition has moved up the agenda, from being an environmental issue, to becoming a security matter.
Absorbing the influx of refugees
Ukrainian refugees could have a significant effect on the rest of Europe. Already, some three million people have fled Ukraine. The UN’s estimate of four million refugees by the end of the conflict is very likely to be surpassed.
Eric Lascelles, chief economist at RBC Global Asset Management Inc., points out that some will return when the war is over, especially since most Ukrainian men remain in the country, though many refugees will not, either because of the destruction to Ukraine or the economic opportunities that wealthier European nations can offer.
He estimates the EU population could well grow by at least one percent in short order. Such migrations are not friction-free, as demonstrated in 2014–2015 when many refugees arrived in Europe from the Middle East and Africa. But as the migrant population settles and gains employment, Lascelles sees the opportunity for a period of faster eurozone economic growth that could last for several years.
In the shorter term, absorbing such an influx of people will be challenging. The welcoming effort so far is largely privately-driven. Should the conflict drag on for an extended period, EU leaders will have to address how to best integrate refugees into society and the economy.
