Global energy crisis: a silver lining?



Electricity shortage causes factory closures and extinguishes streetlights in China. In Brazil, the poor have to choose between eating or paying their electricity bills. The lack of sufficient natural gas supplies in Germany is causing severe economic hardship. The whole of the European continent fears blackouts, factory closures and a deep recession.

The whole world is paralyzed by an energy crisis, caused mainly by the Covid-19 pandemic which has been further exacerbated by the ongoing Russian-Ukrainian war coupled with natural disasters induced by climate change. A lack of adequate supply has caused global oil and natural gas prices to rise, making lighting and heating homes unbearable for the masses. It further aggravated already existing inflationary pressures on the global economy. This energy crisis can easily cause a global economic crisis, with serious consequences for nations.

Europe was the hardest hit due to the compression of natural gas, from which it imports around 90% of all its needs. Russia is the largest gas exporter to Europe and has cut its gas exports in retaliation for Western economic sanctions. The Nord Stream 1 gas pipeline, which is the main source of gas transportation to Europe, was recently shut down by Russia. Certification of the newly constructed Nordstrom 2 pipeline has been suspended by Germany amid Russian aggression in Ukraine under Western sanctions. Russia’s decision to cut off gas supplies has put Europe in crisis as winter approaches.

Climate change has caused extreme weather events in recent years around the world. These events have also threatened energy security in various parts of the globe. In 2021, Brazil experienced the worst drought in nearly 100 years, which threatened its electricity supply, as Brazil relies heavily on hydroelectricity for its electricity needs. Europe experienced its driest summer in nearly 500 years in 2022. This will have serious consequences for hydropower generation and nuclear power plant cooling systems. In Norway, hydroelectric production was affected and France also faced problems with the cooling of nuclear reactors. Above-normal rainfall in South and Southeast Asia has made it difficult for countries like China and India to mine coal, disrupting power generation.

In China, to deal with power shortages, the government has extended electricity restrictions in 20 provinces in the northeast region. The entire area where electricity restrictions have been imposed accounts for more than two-thirds of the country’s gross domestic product (GDP). Due to power outages, factories are not operating at their optimal level, accelerating supply chain shocks. Being one of the largest coal consumers in the world, India faces power shortages due to the scarcity of the aforementioned commodity. Several Indian states faced power cuts during the peak summer months. In Europe, the government is carrying out an awareness campaign and asking its citizens to reduce their energy consumption to avoid power cuts next winter. The European Union (EU) has asked member countries to reduce their electricity consumption to deal with the current crisis.

The EU has proposed imposing a windfall tax on power stations that generate electricity from wind, solar, nuclear and hydroelectric power. By using these revenues, the government will provide a cushion to consumers and industries against rising energy prices. Under this, a price cap of €180 per megawatt will be provided to these generators until March. Another proposed measure is to ask companies that have made excess profits by selling oil and gas at record prices to contribute financially to help struggling citizens and industries. The proposed measures, however, do not include a cap on the price of gasoline. Indeed, this proposal has not yet received majority consensus and the committee is therefore still discussing the matter. Denmark, Germany and the Netherlands are opposed to capping gas prices because they believe it could cause countries to struggle for supplies in a competitive global market. On the contrary, Italy and Poland believe that this could significantly reduce consumer bills.

In the medium term, one of the solutions to the current crisis may be energy efficiency, which is generally overlooked as a reliable option. Being efficient in energy consumption will reduce demand side pressures and play a key role in reducing the high energy prices currently affecting households, industries and economies. Energy efficiency not only helps reduce costs, but can also reduce dependence on imported fossil fuels. Thus, energy efficiency is one of the most effective strategies to deal with the current energy crisis. The energy transition to new renewable energy sources can take almost 30 years to develop and nuclear and hydroelectricity generally take 20 years to establish. Even solar, which is the fastest to set up, takes at least two years. However, energy efficiency can be implemented immediately and its effects are felt sooner than other measures.

The unfolding energy crisis, particularly in Europe, may also be a long-term silver lining. Indeed, it is these events that may require undergoing a transition that is difficult to implement under normal circumstances. This threat to energy security has forced policy makers to look beyond conventional energy resources and take drastic measures to switch to renewable energy sources in mission mode. In the short term, governments can provide the necessary support to consumers through pricing mechanisms, electricity restrictions, etc. But in the long term, it is necessary to provide political support for research and development. This will allow us to create cutting-edge technologies that can make renewable energy more affordable and accessible to people of all strata. It is urgent to move to a new energy model based on a sustainable energy mix independent of fossil fuels. This crisis will act as a catalyst to pave the way towards a new energy model, on which our future depends.

The article was written by Ananya Raj Kakoti and Gunwant Singh, international relations scholars from Jawaharlal Nehru University.

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