The Most Effective Sanction Against Russia: Energy Transition
We woke up in a different world yesterday. War is back in Europe. Russia invades Ukraine and threatens everybody who intervenes with a nuclear strike. Having demilitarized strongly in the last 30 years, Europe seems paralyzed. Appeals and the serious expressions of politicians dressed formally in black, special NATO sessions, and another bombardment of inconsequential threats. Since the annexation of the Crimea in 2014, this strategy has proved to be completely ineffective. But what could be? As is often the case, if we follow the money, we find answers.
Russia is a strong military force with more than 1.3 million soldiers, 4,000 aircraft, 300,000 tanks, and 600 ships. For that, Russia needs to spend about $62 billion per year, making it the country with the fourth-highest military spending in the world. How can the Kremlin keep up with these high expenses?
Selling oil and gas is the answer. Both commodities combined provide about 39% of the Russian federal budget revenue and make more than 60% of Russian exports. That is roughly $250 billion per year. Money that flows from the same countries, which seem to be outraged about the Russian invasion. More than 50% of all Russian oil exports go to Europe while for gas this share is even higher. We are directly financing the New War in Europe.
The West is announcing new sanctions by the hour that freeze assets of Russian oligarchs, ban certain imports/exports, and prevent Nord Stream 2 from starting operations. However, these actions are mostly symbolic in nature and will not result in the desired result. The only sanctions that could prove to be effective are to stop Nord Stream 1, stop buying oil and gas which delivers the means for this war, or to exclude Russia from the SWIFT system. But as we observed yesterday, the EU and its partners will not go that far. Because we are heavily dependent on oil and gas. Whether it’s our heating, the car, or the production facility where we work. Most of it runs on fossil fuels. And as we clearly see these days: That is not just a problem for our climate but for peace itself.
The only remedy against this war and future wars of this kind is a rapid phase-out of oil and gas, and the establishment of an independent energy system in Europe that will make us independent of the politics of autocratic states. Yesterday must be a wake-up call for every government, company, and citizen that wants to secure a peaceful and prosperous future. That means:
- Accelerating the energy transition with everything that comes with it: battery storage, increased spending on R&D, subsidies, intensifying the construction of wind and solar parks as well as power lines.
- Stop subsidizing fossil fuels. Still, EU countries spent about €50 billion on fossil fuel subsidies.
- Reverse the European Commission’s decision to label natural gas as a “green investment”. That does not mean stopping natural gas supply completely.
- Secure a supply of the minerals used by clean-energy technologies from countries that can be considered reliable partners.
The thing is that none of this is impossible. What we need is decisive leadership from everyone. The Federal Minister of Economics & Climate in Germany, Robert Habeck, has presented a contingency plan for Germany’s energy supply in order to overcome dependence on Russian imports of fossil fuels. In a confidential strategy paper, the minister announces a mandatory national energy reserve and subsidies for liquid gas terminals.
That is a start. But if we expect our politicians to stem this project on their own, we are likely to fail. What is needed is the greatest joint venture between the public and private sector that Europe has ever seen. And everyone can contribute to this transition in his/her own way, whether its government (e.g., policies/ laws), companies (e.g., switch to a fossil-free production), or citizens (e.g., take public transport or reduce your heating).
The financial market seemed to have understood quite quickly what the events of the last days means. Wind and solar stocks soared after the Russian invasion. For example, the stock of Sunrun, the American provider of residential solar panels and home batteries, rose by more than 20% yesterday.
In conclusion: This terrible conflict can be the accelerator towards Europe’s energy autonomy which in turn will stop providing autocratic countries to boost their military forces.
For more information regarding the geopolitical consequences of a strong energy transition, please see the report of the Global Commission on Geopolitics and Energy Transformation: http://geopoliticsofrenewables.org/Report
