The Power Game of the Decade

Europe currently still has substantial windows of opportunity to kill two birds with one stone and diversify its energy supply towards a more sustainable future, whilst also strengthening its independence through newly globalised energy partnerships. But truth be told: the transition might come at quite the uncomfortable cost, since both Europe’s own energy infrastructure and its geolocation cause serious bottlenecks.

Dr. Nele Fabian is Senior European Affairs Manager at the European Dialogue Programme of the Friedrich Naumann Foundation for Freedom in Brussels. Maximilian Luz Reinhardt is Researcher at Friedrich Naumann Foundation for Freedom’s think tank unit in Berlin, the Liberal Institute.

The experience of the last two years has shown: if needed, Europe can step up its game. Europe’s´ ability to quickly regain a high proportion of non-Russian energy sources in a bid to decrease dependencies had been underestimated, not only by the Russian energy suppliers, but also by the European institutions themselves. The energy influx by other partners was ramped up and much-needed supply is increasingly available from other sources. However, from a climate perspective, not much has changed for the better, since fuel composition still has the same carbon footprint it used to have.

The Future is Renewable – But Europe’s Infrastructure isn’t

Conventional sources of energy, including nuclear, still make up to 78% in Europe’s energy mix. After Russia stopped the pipeline-bound gas trade, CO₂-intense fuel sources, such as lignite, have faced a renaissance while natural gas consumption has been scaled down to buffer scarcity. Meanwhile, on both the national and European level, many actors and stakeholders stress the need to double down on renewable energy generation, with the EU Green Deal being only one of many endeavours on their minds. The problem is that Europe faces substantial differences regarding different member states´ energy and climate strategies, as well as infrastructural and economic bottlenecks. While the foundation for these different approaches and resulting energy grievances lies in the different historical, economic and geographical backgrounds of various EU member states, the result is all the same: Europe is currently unfit to make the shift to a partly electrified, partly hydrogen-based economy powered by sustainable energy sources.

Frankly speaking, global climate cannot wait for Europe’s member states to sort out their differences – and neither will the rest of the world. Meanwhile, economic recession, a strengthening of political extremes and a shifting international alliance structure puts additional pressure on European politics and businesses alike. Europe has come to understand that its energy needs give suppliers disproportionate power to assert political pressure on the Union, which becomes critical under a scenario of heightened conflict.

Not Only a Raw Materials Problem: Chinese Monopolies in the Energy Sector

Some might rightfully argue that renewable power sources decrease the levers for political coercion, since they do not depend on fuel inputs. But this argument has its shortcomings, too: China’s current market share in the production of renewable energy capacities literally dwarfs that which energy cartels like the OPEC+ states used to have in the fossil world. China also not only dominates the renewable energy production sector, but also the mining, smelting and refinement industries that provide the necessary components. Thus, Europe is facing a densely integrated monopoly in a key technology it most ardently depends on. The same holds true for battery capacities, which form an essential element to Europe’s future smart energy grid and many other components of an advanced, sustainable energy infrastructure. Even with a  successfully downscaled demand of Russian oil and gas supply, Europe’s future in a “renewable world” remains, in fact, critically uncertain. With the world shifting towards a block-building power balance where market-based strategies (prioritising openness and collaboration) increasingly oppose power-based strategies (prioritising state power over openness), structural dependency on one component of the block, not even to speak of value chains in their full extent, may easily trigger consecutive dependencies if other parts of the block decide to use Europe’s weakness to exert further pressure. With the hardened fronts between China and the US, and China increasingly demonstrating its military power and readiness to use it, Europe is left in a conundrum and trapped between both sides, not only politically, but also geographically.

The Greater Scheme: Geopolitics in Play

Domestic energy provision might not be the only aspect by which the hardening geopolitical fronts affect Europe´s energy security. At present there are hardly any realistic scenarios in which Europe will gain energy autarky in the near future. In the past around 70 percent or more of Europe´s primary energy consumption have stemmed from energy imports in the form of hard coal, gas and petrol products. While future imports will likely be sourced from climate-neutrally produced hydrogen and its derivatives, only the sources will change, but Europe´s reliance importing them will likely remain constant. This raises further concerns in the context of rising geopolitical tensions.

The EU’s positioning on the world map complicates the situation as it neighbours Russia and is geographically dependent on a few strategically vital bottlenecks. Around 12 percent of global trade pass through the Suez Canal, and 21 percent of the global petroleum liquids demand passes through the Strait of Hormuz. With the implications of the involuntary blockade caused by the 2021 Ever Given container ship incident in mind, it does not take much imagination to predict major disruptive scenarios, should the Canal, or other maritime trade routes, turn into supply choke points triggered by, for example, a hot conflict over Taiwan. Even with the best intentions to build new trade relations and revive rusty partnerships, the exchange of goods and especially energy resources would still depend on these bottlenecks. The latest incursion of the Hamas in Israel evokes the scenario of critical vulnerabilities that a prolonged hot conflict in the region, likely to affect trade traffic in the Strait of Hormuz as well as diplomatic relationships (especially with Iran and Saudi Arabia), would reveal for Europe. This would now, after downscaling on deliveries from Russia, hit Europe hard and drive global prices up (for comparison, see EURACTIV’s 2019 exploration of this scenario, which back then looked more optimistic).

Stepping Up to the Game

Much of Europe’s future success in maintaining flourishing trade relations, and in keeping its industries going, will lie in its ability to establish stable collaborations. European investment strategies targeted especially at connectivity and sustainability initiatives on the African continent, such as the Global Gateway, have yet to prove how much added structure they can bring and how they preform vis à vis Chinese investment packages, which often come with less predictability for the partner but also with less red tape and “value-based hurdles” attached. This, in turn, is likely to give rise to partners insisting on having their own sets of values respected more by European players. In order to offer partners something of value that only Europe can provide, it has to strengthen its focus on research and development in those areas where European actors can count on a relative advantage. In other words: specialized industrial goods, chemical products and certain high-tech components will pave the way. However, investment portfolios and diplomatic engagements alone might no longer suffice in a world where soft power is increasingly challenged by coercion and use of force. Thus, Europe will additionally depend on its strategic military capabilities. The times in which globalization and cooperative trade were a given might be a thing of the past. Europe should thus reaffirm its alliances, build up credible deterrents, and refocus on its strengths and capabilities. Long story short, any modifications in European energy policy should, from now on, be defined with strict consideration of their long-term geopolitical consequences.