Briefing

Europe's energy crisis, explained

Europe is enduring one of the worst energy crises of our time. How did it get here, and what can we expect?

The aftermath of COVID-19, soaring inflation, climate change, and the war on Ukraine have caused an unprecedented energy crisis in Europe. How did we get here, and what's to be done? Here's everything you need to know:

What's causing the European energy crisis?

Europe began to see some problems with energy supply back in 2021. Usually, during the winter months, the EU imports liquefied natural gas (LNG) from the United States, Latin America, and Russia. However, the power grid trouble in Texas reduced the cargos of liquefied natural gas during the winter, and on top of that, the 2020/2021 winter was colder than average.

Later that year during the summer, heat waves overtook the U.S. and Europe. Latin America also faced droughts, leading to less of the crucial hydropower needed to transport LNG to Europe. According to the International Energy Agency (IEA), the EU increased its gas consumption by 25 percent, leading to surging energy prices due to the lack of supply. Europe also had below-average renewable energy generation, especially in wind power due to less than ideal wind conditions. This led to an even higher demand for energy imports, explains the European Union Institute for Security Studies (EUSS).

The EU heavily relies on gas imports from Russia as well. While the country has been fulfilling the contracted amount, Moscow says its supply has been affected by wildfires and COVID-19. Europe's problem was further exacerbated by the war on Ukraine and remaining effects of the pandemic, which led to high inflation rates, also driving up the price of energy. However, there is speculation that Russia has been using its fossil fuels as a weapon against the EU due to its support of Ukraine in the war, and Europe has been left wondering whether they truly have less supply, CNBC reports. 

The soaring prices have forced multiple European countries to cut energy usage.

What is happening in Europe today?

There is no doubt that Europe has been facing the pressure of the energy shortage. This summer, Europe faced a record-high heatwave, in the midst of the energy shortage. European countries were asked to cut their energy consumption by 15 percent while Russia limits energy supplies due to the war. The EU wants to save energy stock for the upcoming winter which will increase energy demand for heating. 

Record high summers and cold winters are a result of climate change, meaning these dichotomies will likely get more intense. "As bad as it is now, these might still be the good days for Europe," writes Fortune, warning that with higher demand, "Europe's energy market has never been more vulnerable."

The summer heatwave also caused problems for the EU's ability to produce its own renewable energy. Scorching temperatures were "incapacitating" for hydropower sources, and France's nuclear reactors were out of commission due to wildfires, Time reports. The irony is that the lack of renewable sources forces the EU to rely on fossil fuels like LNG, which in turn causes more emissions and worsens the extreme weather. 

Along with physical conditions getting worse, the price of energy has skyrocketed from the pandemic recovery coupled with the war. The wholesale price of megawatt-hour energy hit a record high, reaching 500 pounds or $590, The New York Times reports. Governments have been trying to offset the cost by providing financial aid to residents to help pay utility bills.

"What's increasingly clear is these tough conditions for U.K. households are going to get much, much worse before they get better," remarked Keith Anderson, the chief executive of Scottish Power.

Households are not the only ones suffering from high costs. Many European factories are shutting down lines because they are unable to pay electric and utility bills. In July, European industrial production faced its largest drop in two years. says the Times. Europe has moved into crisis mode, spending even more money to try to remove the energy burden on businesses. Combined, European governments had already earmarked almost 500 billion euros ($496 billion) for the purpose of setting a cap on energy costs for businesses, Reuters reports. The German government even nationalized the utility company Uniper to control costs. German Economy Minister Robert Habeck said the government would "do everything possible to always keep the companies stable on the market," but this is likely to be unstable in the long run. 

French President Emmanuel Macron opened France's first offshore wind farm, despite the energy crisis. His goal is to make the country less dependent on Russian fossil fuels and transition to renewable energy. However, transitioning to renewables is difficult in the current state of the economy, and much of Europe is focused on preparing for winter.

What does the future look like?

For now, things aren't looking good for Europe. Russian President Vladimir Putin's announcement that he would mobilize more troops and his threat of nuclear action showed that the war in Ukraine isn't near over, which will continue to worsen Europe's energy crisis. The situation has become dire enough that EU officials have called for voluntary energy rations, which could later become mandatory. While previously a minor recession was predicted for 2023, Deutsche Bank has now predicted, "a longer and deeper recession," Fortune reports. 

Europe's vegetable farmers have also predicted shortages due to the energy crisis. The surging electric prices threaten crops that require greenhouse heating like tomatoes and cucumbers, reports Reuters. This is causing European farms to consider halting production, which will lead to food security issues as well as the need to import from warmer countries. 

This crisis could also lead to dwindling support for Ukraine, because EU solidarity will likely struggle, argues Foreign Policy's Christina Lu. The Czech Republic has already seen protests over the Russian sanctions, and this may start fracturing unity across the continent. The longer the crisis persists, the higher the tensions could become.

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