Russia’s turning off of natural gas supplies to Poland and Bulgaria on 26 April marks a serious escalation in the Russian attempt to weaponise energy against Europe. Further interruptions could follow. In readiness, European governments must accelerate their diversification away from Russian oil and gas.
To do so, European governments should not only look for oil and gas alternatives elsewhere. They also need finally to get serious about oil and gas demand reduction. This will involve stopping subsidies for oil and gas, and asking people to consume less. While politically difficult, these measures are now urgent, from both energy security and public-finance perspectives. Measures cannot be postponed anymore.
Since the start of Europe’s energy crunch last summer, European governments have been heavily subsidising oil and gas consumption, through measures including direct payments and tax cuts. Initially designed to provide a quick fix to what was supposed to be a temporary problem of high energy prices, these measures have ballooned and have now become structural.
Since September 2021, Germany, France, Italy and Spain have each spent €20 billion to €30 billion to artificially lower gas and electricity bills, and gasoline and diesel prices. Such heavy subsidisation is unsustainable from a public-finance perspective and damaging from geopolitical and energy-security perspectives – not to mention the environment. Europe imports 40% of its gas and 25% of its oil from Russia, meaning EU governments are basically providing subsidies to President Putin.
But European governments should acknowledge that in the current situation, higher energy prices are a key part of the solution. Cutting oil and gas demand is crucial for Europe to increase its resilience in the face of interruptions to Russian flows. Instead of universal energy subsidies, European governments must focus on shielding poor households and vulnerable small and medium companies from higher energy prices by providing them with decent lump-sum transfers. This would be good policy, while subsidising the running of expensive SUVs is bad policy.
Governments must ask people to consume less and should have the courage to tell their citizens that Europe is in the midst of what possibly represents the greatest energy crisis in its history. This requires extraordinary efforts from all, according to their capabilities. As Italian prime minister Mario Draghi asked recently, “Do we want to have peace, or do we want to have the air conditioning on?” This underlines the basic truth that it is our individual responsibility to take simple daily actions that might ultimately not even impact our lifestyle, in order to contribute to the solution to this crisis.
For example, simple energy saving actions such as turning down the thermostat or turning up the air conditioning by just 1°C, working from home when possible, or reducing cruising speed on motorways by 10 kilometres per hour, could save enough oil to fill 120 super tankers and enough natural gas to heat 20 million homes. For this to happen, governments must actively promote awareness campaigns, adopt financial schemes to prompt households to save energy, and introduce regulations mandating energy savings in public buildings. Each cubic metre of gas not consumed is now important, especially as Europe might need to replenish its gas storages without Russia gas ahead of next winter.
To avoid Putin’s energy blackmail, Europe needs to deploy all possible options at its disposal. Compared with difficult and expensive supply-side options, such as finding substantial additional volumes of LNG, demand-side options could be a potentially significant quick win.