Halt of Nord Stream 2 Could Kickstart Europe’s Energy Transition

Sarah Elisabeth Huber is a Student-at-Large from the University of Vienna, studying at Harris School of Public Policy and at the College.

After years of controversy and sanctions, the contested Nord Stream 2 pipeline project has been put on hold by the German government as a result of Russia invading Ukraine – at least for now. The halt of the pipeline almost a month ago could be the first step toward an independent European energy policy based on renewable energies. Yet, in late March, the European Union announced a new gas deal with the United States. The costs associated with the EU’s planned energy transition are unavoidable. Instead of replacing Russian gas with American, this situation should be seen as an opportunity to finally get serious about the path to net-zero-emissions.

Nord Stream 2 is the focus of heated debate within the European Union and beyond. The pipeline was supposed to provide a larger supply of natural gas directly to Germany without being diverted through transit countries such as Ukraine or the Baltic states. Proponents argue that the energy is crucial for the phase-out of more environmentally damaging coal. However, opponents remark that the pipeline increases the EU’s dependency on Russia and gives Vladimir Putin more political leverage. They also contend that expanding natural gas development is irreconcilable with the climate goals set out in the Paris Climate Accords.

The halt of the pipeline increases concerns about rising prices of emission allowances of the European Union Emissions Trading System (ETS). Carbon pricing through the ETS is the cornerstone of the EU’s climate policy and targets emissions in energy-intensive sectors such as power generation and heavy industry. ETS sets an emission cap, which is reduced from year to year with the aim of achieving climate neutrality by 2050. Companies must hold permits for their CO2 emissions, but they can trade these permits, thereby incentivizing a transition to alternative energies. Over the past 16 years, the system has successfully reduced emissions from these energy-intensive industries by around 35%. Permit prices rose sharply in 2021, reaching a record high of almost 100 euros per ton of carbon by the end of February, partly due to a worldwide shortage of gas that led to increased use of coal. Prices have since somewhat declined and were at 85 euros as of April 20.

However, uncertainty about energy supply raises critical voices against the trading system. The EU relies heavily on Russian natural gas, with about 41% of its gas imports coming from Russia. Anticipation of significantly rising gas prices puts pressure on industries to revert to coal, which emits more than twice as much CO2 and increases the demand for allowances. Industries are calling on the EU to review the extension of the ETS. The conservative faction in the EU Parliament wants to enforce an emergency brake against CO2 prices rising too fast. German deputy Peter Liese proposed an amendment that would lower the hurdle for policymakers to issue more emission permits in times of rapid price increases. In practice, these measures would mean the EU increases its emissions in response to the Ukraine crisis and moves away from climate targets.

These moves are justified by the need to protect the market and consumers from rising energy costs. But only a fraction of rising energy prices can be attributed to the ETS. Research by the British think tank Ember concludes that only 12% of the price increase is due to higher carbon costs. The majority of the price increase was due to a colder winter, increased demand in Latin American and Asian countries, and unreliable Russian gas supplies. Increased costs for consumers can therefore be attributed primarily to the unreliability of fossil energy, rather than to the pricing of emissions.

A return to even more harmful fossil energies to substitute for gas cannot be the answer. In addition to the detrimental effects it will have on the climate, it will only further the EU’s dependency on other, possibly unreliable countries. A transition to renewable energies, on the other hand, would not only insulate the EU from Russia’s grasp, but would also help avoid the volatility of fossil gas. Wind and solar energy are less impacted by fluctuating fuel prices and the cost of generating electricity from these sources has strongly declined in recent years. A study by various think tanks shows that Russian gas imports could actually be cut by 66% by 2025 by accelerating the deployment of renewable electricity and improving the EU’s energy efficiency policy. High-priced contracts with other countries to compensate for the shortage of Russian gas are not necessary or even warranted, according to this study.

So far, the decision-makers at the EU level seem conflicted in their response to the energy crisis. On the one hand, Ursula von der Leyen, President of the European Commission and de facto head of the European Union, has unveiled proposals to accelerate some of the EU’s plans in the areas of renewable energy and gas storage. In a statement outlining plans to become independent from Russian fossil fuels, she said: “The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system.” Yet only a few weeks later, a new joint agreement with the U.S. was announced. It will provide for the construction of further infrastructure for the transport of American oil and gas to Europe. These new plans have drawn much criticism because the new gas plants may not be operational for several years, so they would not bring any immediate relief to the strained energy market and represent only another reactionary investment in energies that the EU is planning to leave behind.

The temporary halt of Nord Stream 2 is an analogy for the inconsistency of the EU’s current energy and climate policy. A commitment to renewable energies and energy independence is solemnly made. Yet at the same time, new contracts that promote a further expansion of climate-damaging energies are introduced. The energy transition will come at a price, whether it is carried out now or only in a few decades’ time. Instead of investing in backward energies, the current energy crisis is an opportunity to push toward alternative energies and energy independence. The time has never been better to both break free from the grip of authoritarian leaders and achieve global climate goals.