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11. Decarbonising for competitiveness: four ways to reduce European energy prices

Author:
Conall Heussaff
Publication Date:
12-2024
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Energy prices are higher in the European Union than in most other industrialised economies, presenting a fundamental competitiveness challenge. The price disparity stems from the EU’s reliance on imported fossil fuels, contrasting with the United States, which is a net exporter of energy. In 2024, EU gas wholesale prices were on average nearly five times those in the US. Average EU industrial electricity prices were roughly two and a half times higher than in the US. The transition to clean, domestically generated energy is therefore essential to reduce European energy costs. Despite rapid decarbonisation of the power sector, fossil fuels remain vital for electricity generation and continue to significantly influence final consumer costs. Additional factors influencing final prices include the fixed costs of supporting renewables and maintaining and expanding the energy networks, and consumption taxes and levies. However, the ongoing energy transition is reshaping cost dynamics. Renewables, with fixed capital costs and no fuel requirements, are increasingly transforming the electricity sector. The electrification of heating, transport and other energy services further reduces fossil-fuel demand, shifting overall energy costs from variable fuel expenses to fixed capital investments. As the energy transition progresses, EU energy costs can be expected to fall, but how far they fall and how they are shared will depend on policy choices in four main areas. In the short term, policymakers must allocate system costs fairly across energy consumers. Medium-term policies should encourage demand flexibility in electricity to improve system efficiency. In the long-term, coordinated investment at EU level and deeper cross-border interconnection will drive down final costs for all consumers.
Topic:
Climate Change, European Union, Economy, Industrialization, Decarbonization, Energy, and Competition
Political Geography:
Europe

12. Small-scale LNG in the Euro-Mediterranean: A Contribution to the Decarbonisation of the Maritime Sector

Author:
Pier Paolo Raimondi
Publication Date:
01-2023
Content Type:
Working Paper
Institution:
Istituto Affari Internazionali
Abstract:
While governments have reaffirmed their commitment towards energy transition in light of the current energy crisis, the urgency to act implies to use all possible solutions to reduce CO2 emissions during the transitional period. Natural gas can play a role in the decarbonisation of certain sectors, such as the transport sector. In this sense, the small-scale LNG industry could contribute to the decarbonisation of the Mediterranean region. Regulatory and political incentives as well as socioeconomic and environmental benefits could represent critical drivers for the growing role of the small-scale liquefied natural gas (SSLNG), while it will need to overcome several challenges (e.g. political pressure, economic and infrastructure constraints).
Topic:
Climate Change, Natural Resources, European Union, Gas, Decarbonization, and Energy
Political Geography:
Europe and Mediterranean

13. Renewable relations: A strategic approach to European energy cooperation with the Gulf states

Author:
Cinzia Bianco
Publication Date:
06-2023
Content Type:
Policy Brief
Institution:
European Council on Foreign Relations (ECFR)
Abstract:
Russia’s war on Ukraine prompted a frenzy of energy deals between EU member states and countries in the Middle East and North Africa, but their implementation is slow. The EU needs a new approach to energy cooperation with states in the Middle East and North Africa that serves both its energy security imperative and its climate goals. The Gulf monarchies represent a good test case for such an approach, due to their green ambitions, abundant resources, and significance to the fight against climate change. Political and ideological differences are currently the greatest obstacle to long-term, strategic energy cooperation between the regions. But this year’s COP28 in Dubai is an opportunity for both sides to focus on practical ways to accelerate the green transition. Europeans should emphasise four promising areas of energy cooperation with the GCC states: energy efficiency and electrification, renewable energy, and the circular carbon economy.
Topic:
International Relations, Security, Decarbonization, Energy, and Russia-Ukraine War
Political Geography:
Europe, Middle East, and Gulf Nations

14. Decarbonisation nations: How EU climate diplomacy can save the world

Author:
Susi Dennison and Mats Engström
Publication Date:
05-2023
Content Type:
Policy Brief
Institution:
European Council on Foreign Relations (ECFR)
Abstract:
The EU’s decision to quickly decouple from Russian energy in response to the war in Ukraine and the US Inflation Reduction Act have shifted the dynamics around how the EU engages on climate action in its external relations. The EU and its member states need a new approach to climate diplomacy to respond to this reality. They should frame this approach around an understanding that decarbonisation is central to their economic security. In its relations with Africa, the EU should ensure that all relevant policy tools – including trade, industrial development, and energy deals – reflect the fact that economic security through decarbonisation brings mutual benefits. The EU needs to strengthen its climate diplomacy by rapidly putting together an offer for the global south that includes financing and innovation cooperation to counter negative reactions to its current regulation- and carbon pricing-led approach. The new European Commission and European Parliament from 2024 provide an opportunity to build the structures for greater coordination of investments and planning through Brussels. The EU will also need to increase its capacity and resources if it is to remain a global leader on climate action.
Topic:
Climate Change, Diplomacy, International Cooperation, European Union, and Decarbonization
Political Geography:
Europe

15. EU-Pacific Talks: In-EV-itable future of automotive industry: what is the role of the Pacific region

Author:
Petra Pospíšilová
Publication Date:
06-2023
Content Type:
Special Report
Institution:
Europeum Institute for European Policy
Abstract:
In the last debate of the second series of EU-Pacific Talks, organised by EUROPEUM Institute for European Policy, the guests focused on electric and fuel cell vehicles, which are envisaged as a way to decarbonise road transport. Read what our guests discussed in this report by Petra Pospíšilová.
Topic:
European Union, Transportation, Decarbonization, and Automotive Industry
Political Geography:
Europe and Asia-Pacific

16. Russia's invasion of Ukraine has cemented the European Union's commitment to carbon pricing

Author:
Jacob Funk Kirkegaard
Publication Date:
09-2023
Content Type:
Policy Brief
Institution:
Peterson Institute for International Economics (PIIE)
Abstract:
The European Union managed to overcome Russian energy blackmail in 2022 and used the political motivation from this national security crisis to accelerate its decarbonization process. The planned dramatic increase in the scope of carbon pricing in the European Union can herald the total decarbonization of sectors covered in the EU Emissions Trading System and expand into important new ones. The interplay between the EU carbon border adjustment mechanism (CBAM) and the US Inflation Reduction Act may cause transatlantic trade friction. But these two approaches could also offer a path to greater cooperation. Kirkegaard outlines proposals for how both the European Union and the United States can implement additional policies to secure their comprehensive decarbonization.
Topic:
Climate Change, Environment, European Union, Carbon Emissions, Decarbonization, and Energy
Political Geography:
Europe and United States of America

17. De-risking and decarbonising: a green tech partnership to reduce reliance on China

Author:
Alicia Garcia-Herrero, Heather Grabbe, and Axel Källenius
Publication Date:
10-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
Trade in renewable energy goods is a global public good; all countries gain when others cut emissions, and all suffer from climate change if decarbonisation is delayed. Yet this trade depends on China, which controls most of the world’s production of solar panels and electric vehicle batteries, and some of the global trade in wind turbines. These supply chains are vulnerable to disruption, natural disasters and weaponisation by China, which has already exercised its dominant position in some critical raw materials to put pressure on other countries. Part of the European Union and United States response to reduce reliance on China is reshoring production, but this is economically inefficient given their limited access to critical raw materials and high production costs. Moreover, Chinese firms are far ahead of the rest of the world in green tech manufacturing and innovation, and in extraction and processing. To reduce reliance on China, incentive-aligned governments and businesses should form a green tech partnership. This would produce green tech with the aim of decarbonising faster, while ensuring greater diversification of resources and improving security of supply. Each partnership economy would use its comparative advantage within a new green-tech supply chain. The aim is to supplement, not substitute, the Chinese supply chain, since both will be needed to meet rising global demand for green tech, including in China. Although such international coordination is difficult, the partnership would offers benefits to many different countries. Emerging economies that are rich in critical raw materials and/or have moderate wages would gain economic development opportunities. The US and the EU should share technology and provide financing, as they will gain from reduced dependence on China and from sourcing than is still cheaper than reshoring. China would have more room to use its clean tech to meet its own decarbonisation targets. The partnership could be organised through a combination of trade and investment agreements, together with tech transfer and financial agreements, under some form of inter-governmental oversight. The dependence of all countries on China for green tech is so great that non-market incentives might also be needed, such as subsidies or, preferably, a system of carbon pricing within the partnership.
Topic:
Partnerships, Green Technology, Risk, Renewable Energy, Supply, and Decarbonization
Political Geography:
China, Europe, and Asia

18. A new governance framework to safeguard the European Green Deal

Author:
Jean Pisani-Ferry, Simone Tagliapietra, and Georg Zachmann
Publication Date:
09-2023
Content Type:
Policy Brief
Institution:
Bruegel
Abstract:
With the European Green Deal, the European Union adopted ambitious climate targets and a wave of legislation to reach them. But implementation will be politically challenging, in particular because the Green Deal has not upgraded the EU’s energy and climate governance framework. We propose five priorities for governance reform: All emissions should be made subject to emissions trading. By 2030, separate emissions trading systems (ETS) will cover industrial emissions and buildings/transport emissions, representing three-quarters of all territorial emissions. A third ETS should be created for sectors not yet covered and the emission control mechanisms should be unified by 2040. Preparations should start for an EU Green Investment Plan. This should ensure that after pandemic recovery funding ends in 2026, EU green grants remain at least at the current level of €50 billion per year (0.3 percent of GDP). Making up the annual shortfall would require new EU resources amounting to €180 billion between 2024 and 2030, but this will be important to tackle the political and distributional problems the EU will increasingly face. In addition, currently discussed EU economic governance reforms should be amended to allow countries with public debt exceeding 60 percent of GDP but with sustainable public finances to reduce debt at a slower pace, on the condition that additional emissions-reducing investments are made. A European Energy Agency should be established. This would provide unbiased reference points for policy evaluation and preparation. It would not have decision-making powers but would gather and make available data for decision-making, maintain open modelling tools, and independently assess EU and member-state policies. Energy and climate governance should be elevated to heads of state and government level to increase policy coordination and political ownership. Special European summits would be organised at least once a year, with preparations done by EU energy and climate sherpas. Transmission network development and operation should be driven by European cost minimisation. An European independent network system operator would be able to ensure that existing cross-border transmission is used optimally, also with a view to fostering investment.
Topic:
Governance, European Union, Decarbonization, and Green Deal
Political Geography:
Europe

19. The Sunshine Problem: Climate Change and Managed Decline in the European Union

Author:
Timur Ergen and Luuk Schmitz
Publication Date:
06-2023
Content Type:
Working Paper
Institution:
Max Planck Institute for the Study of Societies
Abstract:
Decarbonization requires the winding down of – economically – fully viable, if not highly prosperous, lines of economic activity. Different from past episodes of industrial restructuring revolving around the managed decline of sunset industries, accelerating climate change requires reallocation away from economic activities where the metaphorical sun is still shining. Firms, owners, workers, regions, and polities structurally rely on these sources of prosperity and have interwoven their past and future lives with them. We argue that this problem has created a space for state actors to experiment with vertical industrial policies to manage the reallocation of resources from polluting to non-polluting activities. We illustrate this dynamic by investigating the least-likely case of the European Union, a polity heavily tilted towards market governance. European climate policymakers, we argue, have incrementally moved away from the primacy of regulatory, market-making tools and have introduced a plethora of vertical instruments to shift resources away from climate-harming fields. This experimentation with vertical policies unfolds against the backdrop of a thirty-year institutional legacy of single market-oriented policy in the energy field.
Topic:
Climate Change, Industrial Policy, European Union, Decarbonization, Green Transition, and Cohesion
Political Geography:
Europe

20. A Comparative Analysis of the Social Situation Between Carbon-intensive and Noncarbon-intensive Regions

Author:
Roman Römisch
Publication Date:
11-2023
Content Type:
Working Paper
Institution:
The Vienna Institute for International Economic Studies (WIIW)
Abstract:
This study focuses on the social situation in carbon-intensive regions and the role of migration in defining its quality. The analysis examines whether carbon-intensive areas, especially those with large outward migration, are more vulnerable to adverse social trends than other regions. Our findings reveal a robust association between the processes of decarbonisation and migration, which collectively exert a significant impact on the social conditions within EU regions. This influence is assessed using various indicators, such as the Social Progress Index, employment rates, availability of hospital beds, access to preschool education, and the prevalence of severe material deprivation. We demonstrate that compared to noncarbon-intensive regions, carbon-intensive regions, compelled as they are to undergo structural changes to meet environmental requirements, have a diminished capacity to offer their residents satisfactory employment opportunities and a high quality of social life. Moreover, if carbon-intensive regions experience the challenge of negative net migration, their social development is highly likely to face a notable deterioration. On the other hand, in cases where inward migration predominates, regions at risk of decarbonisation tend to exhibit minor deterioration – and even outperform the noncarbon-intensive group experiencing outward migration.
Topic:
Migration, European Union, Decarbonization, and Regional Development
Political Geography:
Europe