March 17, 2022
While Russia’s war on Ukraine demonstrates that climate and energy security policies are aligned, possibly spurring global economies to transition more quickly to renewables, just as this week the IPCC reported 3.3 billion people are highly vulnerable to climate change risks.
It is clear. It is “now or never” to limit harmful warming. Economies must enact a “rapid, deep and immediate" cut in fossil fuel emissions.
As Russian forces expand their war on Ukraine, the global economy can either embrace a more rapid global energy transition or continue marching onwards well past 2° C by expanding investments and reliance upon polluting climate change industries.
European Reliance on Russian Fossil Fuels
When Russian Prime Minister Vladimir Putin ordered Russia’s invasion of Ukraine in February 2022, governments imposed limited sanctions, while the EU continued to import Russian fossil fuels. In 2021, Russia supplied 32% of Europe’s fossil gas imports and over 25% of its fossil oil imports.
Now, in response to ongoing Russia’s war on Ukraine, the EU is proposing to reduce its reliance on Russian fossil gas by 80% by 2022 and weighing a ban on Russian coal imports.
Many European countries like Germany source over half of their fossil gas through Russian pipelines.
Others including Finland, Czech Republic, and Latvia source up to 100% of their gas from Russia.
Russia has suggested it could purposefully disrupt supplies in response to the EU supporting Ukraine against Russia’s invasion.
As we enter the summer season in Europe, EU fossil gas storage is at 26%. EU countries are competing to get to 80% storage by November 1, 2022, in preparation for the European winter. To achieve this, the EU needs to replace 155 billion cubic meters of Russian fossil gas with alternative energy sources.
Russian Ruble Trouble
The Russian government is now insisting that Europeans pay in rubles for Russian fossil gas. Russia has threatened to cut off EU fossil gas supply to many countries if deliveries are not in rubles.
Friday, April 1, Danish energy producer Orsted rejected Gazprom’s demand that it pays in rubles.
Then Tuesday April 5, U.S. Treasury halted dollar debt payments by Russia on its sovereign debt increasing the risk that Russia will default on its sovereign debt to from 78% to 88% overnight. This represents an increase from 24% when Russia’s war on Ukraine began February 24, 2022.
Russian Economy Dependent on Fossil Fuel and Agriculture Exports
In 2021, Russia had $493 billion in exports of which 44% – or $219 billion – were fossil fuel and mineral exports compared to 2010 to 2020 average of 63% – or $253 billion – in fossil fuel exports annually.
Since 2010, Russia’s exports of crude and refined petroleum, gas, and coal has declined from 67% to 42% of its economy, while exports of gold and wheat have increased from $3 billion in 2010 to $26 billion in 201 – an increase of 9x.
Bloomberg estimates that for each barrel of fossil oil exported during Russia’s war on Ukraine, the Russian government accrues $8.30 in taxes, or $7 billion in taxes generated for the Russian government in 2020 when adjusted from total barrels imported into the EU daily.
Since 2010, Russia’s exports to the EU have declined from 67% to 51% of total exports while over the same period, Ukraine’s exports to the EU – including Russia – have also declined from 55% to est. 47%.
Russia’s economy depends on its exports as a source of employment and tax revenues –which are being used to finance its invasion of a neighboring sovereign state. The message from Russia is sobering, but unsurprising. It will exercise power to have its way.
For its own security, Europe needs to wean itself off fossil fuels and Russian energy as quickly as possible.
EU Faces Immediate 2030 Climate Target Transition Risk
Prior to the Russian war on Ukraine, the EU climate target plan to reduce emissions 55% by 2030 was based on 70%, 30%, and 25% reductions in fossil coal, fossil oil, and fossil gas. This plan would replace two-thirds of Russian fossil gas by 2030.
Now, the EU needs to replace Russian energy immediately. Europe was counting on Russian fossil gas as a key transition fuel between dirtier options – fossil coal and fossil oil –and renewables. But with fossil gas falling out of the equation, will the EU burn more coal?
The EU intended to triple its renewable energy capacity by 2030 by rapidly deploying more solar, wind, and renewable hydrogen power. Other key investments would be in energy-efficiency-focused renovations and replacing gas heating with electric heat pumps. Other ideas, such as mandated solar panels on new housing and public buildings, or the reopening of nuclear plants, have been proposed in various countries as well.
But transitioning to renewable energy requires a change from a gas infrastructure to an electricity infrastructure, for example for heating. Even with heavy investment, this transition will take years, which the EU suddenly does not have.
The EU and the US had already increased their fossil coal production in 2021. Even though many companies plan to phase out fossil coal production, a resurgence in demand in response to the loss of Russian gas could prolong the coal industry and spell disaster for efforts to reduce greenhouse gas emissions, putting the global economy well on track to surpass 2 °C of warming, presenting a worst-case scenario.
Yet Russia exports many key metals used in renewable energy and battery storage, such as nickel, platinum, and palladium representing 28%, 16%, and 24% of these key renewable energy ingredients. So, does Russia’s war on Ukraine promote greater recyclability of these key metals that support the clean energy transition?
Thus, Russia’s war represents aggression against the entire planet, through regression in efforts to curtail global warming.
Russia’s war on Ukraine has put us on a trajectory to surpass the 2 °C threshold for a livable Earth, and our Paris Agreement commitments, effectively constituting an aggressive act against the entire world community. It woke us up to the need to transition immediately to clean renewable energy and to decarbonize our economy, but at a terrible cost. Cover image: 2022 World Bank Ukrainian Vyshyvanka Day with Responsible Alpha Attending