9: What the Russian Invasion of Ukraine might mean for our net zero energy transition

In my last Net Zero Blog post I looked at the relationship between rising energy prices and the world’s decarbonisation targets and efforts. How the world has changed (again) in the three weeks since that post. First and foremost, the events unfolding following Putin’s inexplicable and senseless decision to authorise the Russian invasion of Ukraine on 24 February have resulted in an awful human tragedy with no end currently in sight. We must hope and pray that a diplomatic solution can be reached as soon as possible before thousands more innocent civilians lose their lives.

Putin’s war has triggered a ubiquitous awareness of Europe’s energy insecurity and it is likely to have short- and long-term wide-reaching effects on global energy consumption and policies, with countries realising that they need to rapidly reduce their reliance on Russian gas, oil and coal. Just a day before the invasion President Biden stated: ‘Through his actions, President Putin has provided the world with an overwhelming incentive to move away from Russian gas and to other forms of energy.’ In a similar vein, EU President Von der Leyen said in a press statement on 22 February that ‘We have to diversify our suppliers and massively invest in renewables. This is a strategic investment in our energy independence.’ The German finance minister, Christian Lindner, also pitched in with a nice soundbite saying that ‘renewable energy is freedom energy’.

Upon news of the impending invasion a barrel of Brent crude oil increased nearly 10% to almost $106, European gas prices increased by almost 70% and the price of a litre of petrol in the UK breached £1.50. Crude oil and petrol prices have continued to surge, with Brent crude reaching $130 per barrel earlier this week. The west may have imposed unprecedented financial sanctions on Russian banks, the Central Bank and oligarchs but, until yesterday, the UK, EU and US were still maintaining their daily collective ~$700m spend on Russian gas and oil. That position partially changed yesterday when the US decided to cease all imports of Russian oil and the UK government issued a press release stating that it will phase out the importation of Russian oil and oil products by the end of 2022. European reliance on Russian oil and gas has been building in recent times: there is a high demand for nearby oil and gas during the winter and Russia is the world’s third largest oil producer (after the USA and Saudi Arabia) being responsible for 12-13% of global output, and the second largest producer of gas (again, behind the USA) being responsible for 17% of the world’s output. Russia’s oil and gas sales amount to 40% of the government’s total revenue, so there is reliance on both sides, for the time being. Just three weeks before the Ukrainian invasion Russia and China agreed new ~£90bn oil and gas deals including a 30-year gas contract that would significantly boost Russia’s gas supply to China via the ‘Power of Siberia’ pipeline system and other future gas pipeline projects. At present, the pipeline infrastructure isn’t in place for Russia to immediately switch all oil and gas exports from Western countries to China, so Russia would really be shooting itself in the foot / pocket if Putin decided to turn off Europe’s oil and gas in the near future. Having said that, Russia (Gazprom) has in the last year decided not to sell additional gas to Europe despite high demand, which has been a key cause of recent gas price rises.

Clearly, the Western world (or at least Europe) can’t itself simply switch from Russian gas and oil overnight, but what can be done to reach a position of a more secure energy supply, how long will it take and are the solutions compatible with our net zero targets?

What energy-related action has been taken so far in response to the Ukraine invasion?

The Germans have been the most active of the European nations to date in their energy-related response to the invasion. This has included halting the operational approval of Gazprom’s constructed $11bn, 1,200km Nord Stream 2 gas pipeline running between Russia and Germany, which would have further increased European reliance on Russian gas and provide enough gas to heat 26m German homes per year. Also, European energy companies are taking significant, costly action by exiting various Russian energy joint ventures. BP confirmed last weekend that it would sell its multi billion pound ~20% share in Rosneft (the Russian state oil company), Shell confirmed that it would exit several multi billion pound gas, LNG and petroleum-related joint ventures with Gazprom, and Equinor will also withdraw from all of its Russian projects. All of these companies are currently ploughing billions into renewables such as wind, solar, hydrogen and EV technologies, so these latest Russian divestments will be followed by even greater investments in clean energy. So far, so good for project net zero.

How might the Ukraine invasion impact on Europe’s Energy Policies in the medium term?

This week, the EU is expected to announce a plan to cut Russian gas imports by two-thirds within a year so as to reduce dependency on Russian fuel. Frans Timmermans, the European Green Deal commissioner, considers that the EU should import more liquefied natural gas (LNG), massively increase renewable energy generation, and also reduce energy demand through efficiency measures. However, he also accepts that EU countries may need to burn coal for longer in order to avoid Russian gas. Timmermans considers that the EU can still meet its targets to limit global warming by cutting greenhouse gas emissions by at least 55 per cent by 2030, and the net zero goal by 2050, provided that renewable energy also ‘increased rapidly’. I’m not sure how much scientific rigour has been applied to this assessment!

There is considerable scepticism around whether mainland Europe could manage without Russian gas over the short to medium term. Energy consultancy, Timera Energy, considers that ‘Europe will depend on gas as a transition fuel until enough flexible low-carbon replacement energy can be deployed…But there is no doubt that high and volatile gas prices are accelerating the public and political momentum behind energy transition in Europe.’ The Centre for Research on Energy and Clean Air (CREA) recently tweeted that for Europe to end its imports of Russian gas it would need to build approximately 370 gigawatts (GW) of wind and solar at the same time as introducing domestic heat pumps, and that would be enough to increase clean energy generation in the EU and UK combined by around 40% over the next few years (subject to planning!!). Decent progress has been made to double the amount of renewable energy generation within the EU from 2004 to reach 22% of total energy generation by 2020. But at the same time the proportion generated from nuclear power has fallen from roughly 33% in 1995 to about 25% now. A decent proportion of this can be attributed to Germany’s shift away from nuclear power following the Fukushima nuclear accident in 2011. Germany is now starting a new shift, and has ordered a review of how the country secures its energy; according to Reuters, it is expected that the German government will seek to accelerate towards a 100% renewable electricity system by 2035, in addition to higher intermediate targets for 2030.

Reuters also reported that Germany might consider keeping its coal and nuclear plants open for longer to reduce its demand for Russian gas, but in order to do so it may need to switch some / all of its current coal imports away from Russia too! Germany is aiming to eliminate coal entirely by 2030 (previously 2038), but perhaps the Germans will now need to backtrack on that commitment? Further, it may prove difficult for Germany to reopen recently closed nuclear plants due to the need to obtain the requisite regulatory approvals and secure fuel. In relation to the proposal to import more LNG from countries such as the US, Qatar, Azerbaijan, Nigeria and South Korea there are some key downsides; it will take several years to build the necessary infrastructure, but also there will be LNG price volatility arising from the increase in demand both from Western countries and from China.

Impacts on UK energy policy and net zero

So, how about the UK situation? Roughly 40% of Europe’s gas comes from Russia, whereas less than 5% of the UK’s gas is Russian (the vast majority is from rapidly depleting North Sea reserves and from Norway), but nevertheless we are still affected by higher wholesale gas prices, which will have an impact on energy bills. The energy price cap is increasing to £1,971 (from £1,277) on 1 April, but Investec considers the cap could reach £3,238 when it is revised again in October, largely as a result of the Russian invasion and restriction of Russian gas flows. On Monday, Boris Johnson promised that the government is developing an ‘Energy Supply Strategy’ which will focus on using more ‘domestic energy resources’. He said that, although the UK’s carbon emissions targets would not be abandoned, there would be a need to increase the usage of hydrocarbons (oil and gas) during the transition to net zero in order to be more self-reliant in terms of energy sources. This is expected to result in policies and decisions favouring: new North Sea oil and gas extraction, more renewable and nuclear power, and energy efficiency upgrades to insulate homes and reduce demand for gas. The key shift here is the focus on North sea oil and gas.

As it happens, the government is currently consulting on continuing to license new gas and oil fields, and a couple of weeks ago the Committee on Climate Change (CCC) published its advice to ministers on whether such licences can be compatible with the UK’s climate targets. It concluded that as it could not establish clearly whether new exploration would significantly increase greenhouse gas emissions globally, and considering the UK’s energy security went beyond its remit, any decision on new licences must be taken by ministers. So, the door remains open. However, there are considerable barriers and issues in developing new gas and oil fields; the CCC recently noted that when new projects in the North Sea are granted a development licence, it takes an average of 28 years to start producing oil and gas, so such development would have no impact on the current energy crisis. Further, Energy UK chief executive Emma Pinchbeck tweeted on the link between UK and European gas prices, stating that it “highlights why more UK production wouldn’t really help bills – we are exposed to the wholesale price and UK gas is sold in European and global markets. We need to reduce UK dependence on gas.”

Net Zero Watch, the climate-sceptic lobby group, are calling for an expansion of UK fossil fuel supplies, including via fracking for shale gas. Attempts to frack in the UK started more than 10 years ago, but didn’t come to fruition as a result of protests, environmental concerns and because of the expense of industrial fracking in a densely populated country. Restarting fracking now would be met with the same issues and take several years to produce gas, and query whether there would be sufficient investor interest as we transition to a clean energy economy.

Over the past couple of weeks, there has been increased positive talk around the need to speed up the UK’s development of new nuclear facilities. Good progress is being made at EDF’s Hinkley Point C facility (it will start generating electricity in June 2026) and, in addition to these larger nuclear facilities, the Small Modular Reactor (SMR) movement is gathering rapid pace. It was announced on Monday that Rolls-Royce’s SMR design will now enter the design assessment process with the Office for Nuclear Regulation, and the Rolls-Royce consortium is now fully funded having secured ~£500m of investment. The Nuclear Industry Association stated yesterday: ‘This is a vital step forward for British nuclear technology. The UK needs the Rolls-Royce SMR to strengthen our energy security and cut our dependence on gas as we move toward net zero.’ Although the cost of nuclear facilities is higher (but less so for SMRs) than most other forms of electricity generation, the current high gas prices may actually mean that there will be less criticism of a new financing model to fund new UK nuclear power stations that will be released later this year. Of course, none of these nuclear facilities will provide an alternative to Russian hydrocarbons in the short term, but they will in the fullness of time provide a significant proportion of UK energy over several decades that will be UK-derived.

It will be interesting to see whether the government’s anticipated Energy Supply Strategy will have any positive or negative implications for other forms of clean energy generation such as solar and wind. We will be sure to blog about it once it has been published. Supply is of course only half of the picture and perhaps there should be a demand strategy as well (eg insulation, flattening demand peaks).

Politics, Politics, Politics

The climate crisis on its own should have demonstrated that green energy, not oil or gas, is the future. But having failed to do so, geopolitical turmoil and war may now provide the wake-up call that the world needs. As we reduce our reliance on gas and oil (Russian or otherwise) and pursue a route to net zero emissions, the value of this political missile will fall off a cliff. Ending the use of fossil fuels is not only vital to our climate security, but it is now abundantly clear that it’s vital to our energy security and national security. Yes, we may get away (climate-wise) with using more domestic oil and gas during the years of transition to net zero, but investment in such extraction should not be at the expense of the enormous capital expenditure required to build solar farms, wind farms, new nuclear reactors / SMRs, hydrogen infrastructure, battery storage and non-gas domestic heating solutions.

Unfortunately, the speed of the global clean energy transition is not just a question of economics but it is a (bigger) question of politics and global co-operation. In recent years, good progress has been made with global climate / COP negotiations and climate action through diplomacy and co-operation, but during times of war a lack of diplomacy could significantly hinder global climate change progress. I am confident that the UK and other Western economies will quickly transition to self-sufficient clean energy, but if the Chinas and Russias of this world continue on the rogue hydrocarbon route then it will be difficult to avert a climate disaster. Here’s a final quote from Thijs Van de Graaf, professor of international politics at Ghent University: ‘The truth is that we have never treated climate change as the emergency that it really is, in the same way as we are now treating the Ukraine war as an emergency. The national security paradigm has a far greater mobilising force than the climate catastrophe paradigm.’