Which European countries are handling the energy crisis best? | Business and economics | Popgen Tech

Tax concessions. Reduced electricity consumption. And a desperate search for alternative sources of gas. Europe is grappling with one of its biggest energy crises in living memory, just as the cold, dark days of winter arrive.

Russia’s invasion of Ukraine in February this year exacerbated supply issues and led to the cost of imported natural gas spiraling upwards. Governments across Europe have tried a diverse set of measures to protect citizens from the worst effects of rising prices while keeping their economies afloat. But labor strikes and burgeoning street demonstrations in several cities show that the pain is real and deep for millions of people.

Al Jazeera spoke to economic experts to see which European countries are handling the crisis better than others, what’s working and what’s not.

The short answer: France and Spain have curbed inflation the best, while Italy, Germany and Greece are leading the way in long-term preparations to secure their energy needs. And the UK is struggling.

An unequal risk

Russia accounted for almost half of Europe’s total natural gas imports in 2021, but some countries were always going to be more vulnerable than others.

Poland, Finland and Slovakia were almost entirely dependent on Russia for their natural gas due to their geographical proximity to its supply pipelines. Germany, Europe’s largest economy, was dependent on Russia and imported half of its natural gas from the country in 2021. The large German chemical industry, which employs more than 300,000 people, uses natural gas as a raw material.

Then there are countries that have traditionally had a larger share of natural gas in their total energy mix: Italy (40 percent), the Netherlands (37 percent), Hungary (33 percent) and Croatia (30 percent). While these countries depended on Russia to varying degrees, they all saw sharp inflation as gas prices rose to record levels.

Still, experts said some countries are leading the way in seeking alternatives to Russian gas.

Lean on LNG

Europe as a whole is moving towards liquefied natural gas (LNG) to reduce its dependence on Russian gas, which is mostly delivered through pipelines. Between January and September this year, the European Union imported more LNG than it had ever bought in an entire year.

Within Europe, Italy has been “proactive in finding LNG supplies”, Maartje Wijffelaars, senior economist (Eurozone) at Rabo Research in the Netherlands, told Al Jazeera.

Doubters said Italy began looking for alternative gas supplies from Azerbaijan, Algeria and Egypt soon after the war broke out. That Algeria – a major gas exporter – sits just across the Mediterranean helped.

Some countries, including Spain, France and Italy, have the advantage of a head start in the form of existing fixed LNG terminals, Wiffelaars said, compared to other European countries such as Germany that have traditionally relied more on pipeline gas. Together with the UK, these countries have the highest LNG import capacity in the region.

Many others are turning to floating terminals, which take less time to set up than permanent ones on land.

Leading the way in this initiative is Germany, which recently completed the first of five planned floating LNG terminals. Once they are all up, Germany will have one of Europe’s highest import capacities. Greece is also planning five floating LNG terminals, which could make it a hub for Southeast European countries.

But LNG from countries like Qatar, Australia and the United States will take at least a few years to increase as new projects come online.

“Until then, there will continue to be upward pressure on energy prices,” Ben Cahill, a senior fellow in the energy security and climate change program at the Center for Strategic and International Studies, told Al Jazeera.

Already in recent months, the Eurozone has seen the sharpest rise in inflation since its inception – around 70 percent of that inflation in September was due to energy prices.

But some countries have done better than others in protecting their citizens.

Tame prices

France has frozen domestic gas prices at October 2021 levels and limited electricity price increases in 2022 to 4 percent over last year’s. It recently announced that the power and gas price increase will be limited to 15 percent next year.

Without these measures, household bills would have more than doubled. The cost will be borne by the French public operator.

The country has traditionally relied less on Russian gas (7.6 percent of total gas imports) than many other European countries, but is heavily dependent on nuclear power. Many of its nuclear power plants are undergoing maintenance, which means France has an energy shortage. But its price caps on gas and electricity have allowed it to keep its inflation the lowest in the EU over the past 12 months.

After France, Spain stood out in terms of buffering citizens against inflation through a host of tax reduction measures and a cap on the gas tariff, according to a November 18, 2022 Rabo Research report.

Is there a lesson there for other European countries? After all, since September 2021 – when the bottlenecks of natural gas supply began in the months before the war – many of them have set aside funds to deal with the crisis. As oil and gas prices soared as a result of the war, these countries added to this kitty.

Germany is responsible for 264 billion euros ($281 billion) – or almost half – of the total 600 billion euros ($638 billion) earmarked for the energy crisis by EU countries, according to Brussels think tank Bruegel. Germany’s relief measures account for 7.4 percent of the country’s gross domestic product (GDP). It is followed by Lithuania (6.6 percent), Greece (5.7 percent), the Netherlands (5.3 percent) and Croatia (4.2 percent).

But while France and Spain are capping prices and discounting fuel prices to protect citizens from high costs, others – including Germany – have focused mostly on providing direct financial support to vulnerable populations, while also introducing measures such as tax cuts on motor oils and windfall taxes. on energy companies. In Austria, for example, households received a one-off discount of 150 euros ($158) on their energy bills, with the most vulnerable receiving double that.

Germany’s emphasis on boosting household and business incomes has ironically contributed to an increase in demand and higher inflation. By contrast, France and Spain have taken direct measures to combat inflation by controlling electricity prices, Wiffelaars said. However, Germany will start subsidizing power bills for consumers from next year, which should lower inflation.

Although France and Spain have kept prices under control and Germany leads the way in its financing support, the UK does neither. Its inflation rate of 11.1 percent in October was the highest in 40 years. And, unlike Germany, it has set aside resources equivalent to only 97 billion euros ($103 billion) to deal with the energy crisis – just 3.5 percent of its GDP. Britain has rolled back earlier plans to freeze energy prices for two years, instead limiting that period to six months until March 2023.

As different countries adopt different measures, Europe as a region faces tough questions in the coming weeks, months and years, experts said. Chief among them: Must every nation think of itself first?

Challenges ahead

Germany recently announced a new 200 billion euro ($210 billion) package to deal with rising gas prices, upsetting other countries who have called for a coordinated EU response.

“There is an ongoing debate about whether the EU should take measures collectively or whether it should be at the national level,” Philipp Heimberger, an economist at the Vienna Institute for International Economic Studies, told Al Jazeera. “As we continue into the winter months, this debate will intensify.”

He believes the crisis can drive changes in the industrial policy of major economies.

“In countries like Germany, large parts of the industrial sector have benefited from low energy prices, over quite a long period of time,” he said. “We have to wait and see to what extent this leads to deindustrialization in Germany as the competitiveness of energy-intensive sectors will decline.”

Overall, Europe’s increasing appetite for LNG makes it the main driver of global gas trade in the coming years, accounting for more than 60 percent of net global growth in imports during 2021-2025, according to the International Energy Agency.

However, Europe’s LNG regasification terminals – where the fuel is converted back into natural gas – “are not well connected to the whole continent,” Cahill warned. “It’s a very fragmented system … which disadvantages some countries.” The worst connected region is Southeastern Europe, which has also traditionally been one of the most dependent on Russian energy.

Wijffelaars said a shift to renewable energy would help. But Europe must be careful there too. Europe imports 98 percent of the rare earth element supplies it needs to make electric vehicles, batteries and permanent magnets for electricity generators from China.

“We know China has a lot of rare earths and raw materials that we may need for our energy transition,” said Wijffelaars. “However, to the best of our ability, we will have to diversify the portfolio as much as possible so that we do not become dependent on one country.”

This is a mistake that Europe cannot afford to repeat.

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