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Energy dependency: a disease that is causing Europe severe economic and political harm [updated]

Europe needs to become more intelligent if it is to stop paying more than one billion USD every day for imported energy

The share of imported energy in Europe is growing and every day it pays more than one billion USD for its energy dependency, one that also has a political price. Fortunately, there are a couple of possible solutions to reduce both the financial and political costs.

The first, and I think the most obvious, solution is energy efficiency. The USA is fortunate enough to enjoy an abundance of unconventional oil and gas reserves, but Europe does not have such easy-to-exploit hydrocarbon sources that could reduce its energy dependence, CO2 emissions and energy bills. Nor can it compete with the US and other countries on energy prices, but it can use its energy more intelligently and efficiently.

Indeed, while the EU has maintained its gross energy inland consumption at practically the same level since 1995, its GDP in purchase power parity has grown by one-third [i]. Still, it is far from the economic and technical optimum. The Swiss, for example, make each GDP unit with about 50 percent less energy[ii] than the EU average.

The recently published “EU Energy in figures 2013” statistical review draws a dramatic picture of the European Union’s energy supply. In 1995, 43% of the EU’s gross energy demand was covered by imports. By 2012, the share of imported energy had risen by over 10 percentage points to 53,3%.[iii]

Those figures are for energy in total. When it comes to fossil fuels, the imbalance is even greater. For example, out of every 6 liters of refined petroleum products such as gasoline and diesel used in the EU, 5 liters have been imported. Nearly two-thirds of the natural gas used in the EU comes from abroad. Even the share of imported coal [iv] and other solid fuel exceeds 40%.

It isn’t a panacea but could renewable energy be the second solution for Europe? Renewable sources are virtually greenhouse gas free but are also domestic sources of energy. A typical wind turbine replaces annually 1500 tons of imported coal from Russia, Columbia or other regions in electricity generation. This means a reduction of over 130 000 USD in trade deficit and 3600 tons of CO2 emissions per annum.[v]

Europe’s growing reliance on imported fuels is undermining the region’s economic recovery. Every day over 1 billion USD – over two USD for each EU inhabitant – flows away from Europe to other countries as a kind of thank-you for the use of their energy[vi]. In this respect, the dispute between Ukraine and Gazprom of about 1,6 billion USD in unpaid gas bills [vii] is peanuts.

[Update on 27.3.2014] Link to WTO decision on China rare earth metals case added

Nevertheless, the dispute reminds us of the other price tag attached: the political repercussions. The high import rate of strategic raw materials translates into a political and economic vulnerability. Europe has had to deal with this fact several times during the last decade (e.g., the case of China’s restriction of rare earth metal exports).

The European Union climate and energy efficiency targets beyond 2020 are under discussion. The European Commission has proposed a binding CO2 reduction target of 40% by 2030 (based on 1990 CO2 levels), as well as a renewable target of 27% by 2030. Meanwhile, the European Parliament is calling for more ambitious targets[viii]. Whatever the final decision will be, it is good to keep in mind the two price tags energy has and the ways to reduce them.

 

References

[i] GDP Growth: EU 27, constant prices and constant PPP: http://stats.oecd.org/# - Popular queries / Gross Domestic Product (Annual), VPVOB

Energy usage: see (i), p 39 (Gross inland consumption)

[ii] http://www.iea.org/statistics/statisticssearch/ Energy intensity, TPES / GDP

[iii] European Commission: EU energy in figures 2013, ISBN 978-92-79-30194-0, page 22 OR on-line figures: http://epp.eurostat.ec.europa.eu/tgm/table.do?tab=table&init=1&plugin=1&language=en&pcode=tsdcc310

[iv] See (iii)

[v] Calculation facts: Turbine 2 MW, 2000h/a = 4 GWh /a. Coal: power plant eff = 0,38, coal price 90 USD/t, specific emissions 900 kg / MWhe, coal caloric value 25 MJ/kg  (see IEA: http://www.iea.org/publications/insights/insightpublications/ImpactGlobalCoalSupply_WorldwideElectricityPrices_FINAL.pdf, page 22 BOX 1)

[vi] EWEA : EU Commission: http://ec.europa.eu/economy_finance/publications/european_economy/2014/pdf/ee1_en.pdf, p. 112

[viii] For example http://www.theguardian.com/environment/2014/feb/05/european-parliament-votes-renewables-targets

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