Europe can make significant energy security gains by increasing climate action – Analysis – Eurasia Review

Russia’s invasion of Ukraine has sparked Europe’s worst energy crisis since the 1970s and has put energy security back at the top of the political agenda.

Policymakers responded quickly, securing alternative natural gas supplies, improving energy efficiency and developing renewable energy sources. They argue that reducing greenhouse gas emissions will not only mitigate climate change, but also strengthen energy security. But skeptics countered that this approach would increase energy costs, phase out safe (if dirty) domestic coal more quickly, and ultimately undermine the continent’s energy security.

So which view is right? Our new research shows that strengthening Europe’s climate action also provides significant energy security benefits.

We assess the impact of climate action on energy security in a global economic model with multiple countries and sectors. It simulates the impact of policies aimed at reducing emissions on two basic safety measures.

First measure, Security of supply, assesses the risk of disruptions in energy supplies by combining a country’s degree of dependence on imports for energy consumption with the degree of diversification of these energy imports. The second one is resilience of its economy to energy supply disruptions, represented by the share of gross domestic product it spends on energy.

Surprisingly, our analysis shows that Europe’s energy security deteriorated in the decades leading up to Russia’s invasion of Ukraine, as countries increasingly relied on imports from fewer and fewer suppliers.

The simulations also show that higher carbon prices, stricter sector-specific energy efficiency regulations and accelerated permitting for renewable energy sources would improve Europe’s energy security based on these two key indicators. However, the effects will vary depending on the policy:

Carbon prices reduces emissions at the lowest cost of production for the economy, but improving energy security in some of the energy-intensive and carbon-intensive economies of Central and Eastern Europe may take time if used as the only emission reduction tool. This is partly because these countries would have to phase out domestic coal sooner.
Tightened regulations on energy efficiency for transport and buildings are less effective at reducing emissions than carbon pricing, but have greater co-benefits in terms of energy security. They also distribute these benefits more evenly between countries. Such regulations reduce energy consumption, as do carbon prices, but they usually reduce the price of energy and therefore overall energy expenditure to a greater extent. Combining them with support for poorer households – for example to buy more energy-efficient vehicles and home heating systems – would make them more palatable and thus speed up implementation.
Accelerated permitting for renewable energy sources also broadly improves energy security across Europe by increasing national energy supplies.

Climate policy of packaging

A climate policy package that includes all of these tools is the most promising solution because it combines the economic efficiency of carbon pricing with the larger and more evenly distributed energy security benefits of regulation.

In particular, the package of measures improves energy security in three ways. First, it reduces dependence on imports by replacing imported fossil fuels with domestically produced renewable energy.

Secondly, it diversifies economies’ energy imports from non-European suppliers towards European suppliers – through increased penetration of renewable energy sources and electrification of end-uses such as vehicles and home heating systems, especially given that European countries trade electricity mainly with its European neighbors.

Third, it lowers energy spending as efficiency investments reduce demand and the accelerated deployment of renewable energy sources increases energy supply – both of which lead to lower energy prices. This more than offsets the higher costs resulting from higher carbon prices.

An example policy package reducing emissions by 55 percent compared to 1990 levels would improve both energy security indicators by almost 8 percent by 2030 across Europe.

For the European Union, this package, consistent with the “Fit for 55” program, would reverse the 13-year-long process of deteriorating the economy’s resilience to energy disruptions and the eight-year decline in the security of energy supplies. As Europe continues to step up its climate policy efforts beyond 2030, these benefits will only increase.

Multilateral cooperation

The simulations also support the case for strong multilateral cooperation in Europe, given that countries differ in terms of energy security gains and emissions reduction costs (which in turn reflect factors such as their current energy intensity, energy mix and renewable energy generation potential ). A common instrument pooling resources and coordinating green investments at EU level could accelerate the green transition at low cost, with a more equitable distribution of benefits, including by exploiting low-cost emission reduction options in emerging EU member states.

A good example is the completion of the EU’s Energy Union strategy: better interconnection of national networks would reduce costs and help countries import electricity from other member states in the event of internal disruptions, improving energy security for all.

At a time when the momentum for climate action is at risk of weakening, European policymakers should consider its full benefits. By improving their individual emissions reduction policies and strengthening cooperation as planned, they will not only remain global leaders on the path to net zero emissions by 2050, but will also ensure an abundant and secure energy supply to power their economies into the future.

About the authors:

Geoffroy Dolphin is a climate economist in the European Department of the IMF. His expertise is in environmental and energy economics, with a particular emphasis on climate change mitigation policy. Geoffroy’s work focuses on international comparisons of mitigation policies, the political economy of their implementation, and their impact on greenhouse gas emissions and economic indicators.
Romain Duval is deputy director at the IMF’s Research Department, where he leads the structural reform program. He previously worked at the IMF’s Asia and Pacific Department and, before joining the IMF, at the OECD.
Galen Sher is an economist dealing with the German economy in the European Department of the IMF. He previously worked in the IMF, Western Hemisphere, Currency and Capital Markets Research Department and was previously a Research Economist at the Bank of England.
Hugo Rojas-Romagosa is a senior economist at the Research Department of the International Monetary Fund. Previously, he worked at the World Bank (2020-2022), as a senior researcher at the World Trade Institute in Bern (2018-2020), and as a senior researcher at the Netherlands Economic Policy Analysis Bureau CPB (2006-2018).

Source: This article was published on the IMF blog