tax reduction. Reduce electricity use. And a desperate hunt for alternative gas sources. Europe is grappling with one of the biggest energy crises in history, just as the cold, dark winter days begin.
Russia’s invasion of Ukraine in February of this year exacerbated supply problems and led to soaring costs of imported natural gas. Governments across Europe have tried a range of measures to protect people from the worst effects of soaring prices while keeping their economies afloat. But the worker strikes and street protests that are erupting in many cities show that the pain is real and deep for millions.
Al Jazeera spoke with economic experts to see which European countries are dealing with the crisis better than others, which are effective and which are not.
Short answer: France and Spain have managed to contain 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 in trouble.
Russia accounts for almost half of all European natural gas imports in 2021, but some countries will always be more vulnerable than others.
Poland, Finland and Slovakia depend almost entirely on Russian natural gas due to its proximity to the country’s supply pipelines. Germany, Europe’s largest economy, is already dependent on Russia, importing half of its natural gas from the country by 2021. Germany’s vast chemical industry, employing more than 300,000 people, employs natural gas as raw material.
Then there are countries that have traditionally had a higher share of natural gas in their total energy mix: Italy (40%), the Netherlands (37%), Hungary (33%) and Croatia (30) %). Although these countries depend to varying degrees on Russia, they all saw sharp inflation as gas prices soared to record levels.
However, experts say some countries are looking for alternatives to Russian gas.
Based on LNG
Europe as a whole is turning to liquefied natural gas (LNG) to cut its dependence on Russian gas, much of which is transported via pipelines. From January to September this year, the European Union imported more LNG than it used to buy in the whole year.
In Europe, Italy “has been proactive in finding LNG supplies,” Maartje Wijffelaars, senior economist (Eurozone) at Netherlands-based Rabo Research, told Al Jazeera .
Wiffelaars said Italy began looking for alternative gas supplies from Azerbaijan, Algeria and Egypt shortly after the war broke out. The fact that Algeria – a major gas exporter – is located just across the Mediterranean Sea has helped.
Some countries, including Spain, France and Italy, have an advantage over existing fixed LNG terminals, Wiffelaars said, compared with other European countries such as Germany, which have traditionally depended on more dependent on pipeline gas. Together with the UK, these countries have the highest LNG import capacity in the region.
Many others are switching to floating terminals, which take less time to set up than land-based fixed terminals.
At the forefront of this initiative is Germany, which recently completed construction of the first of five planned floating LNG terminals. Once it all increases, Germany will have one of the highest import capacities in Europe. Greece is also planning five floating LNG terminals, which could turn the country into 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.
Ben Cahill, senior fellow of the Climate Change and Energy Security Program at the Center for Strategic and International Studies, told Al Jazeera: “Until then, there will continue to be upward pressure on energy prices. quantity.
In recent months, the Eurozone has seen its strongest inflation since its inception – about 70% of that inflation in September was attributed to energy prices.
But some countries have done better than others in protecting their citizens.
France has frozen household gas prices at October 2021 levels and capped electricity price increases in 2022 at 4% year-over-year. They recently announced to cap electricity and gas price increases to 15% next year.
Without these measures, household bills would more than double. Expenses will be borne by the French public operator.
It has traditionally been less dependent on Russian gas (7.6% of its total gas imports) than many other European countries, but is more dependent on nuclear energy. Many of the country’s nuclear power plants are under maintenance, meaning France is short of energy. But price caps on gas and electricity have allowed the country to keep inflation at the lowest level across the EU in the past 12 months.
According to a report dated November 18, 2022 by Rabo Research, after France, Spain has stood out in terms of supporting its people from inflation through a series of tax reductions and the imposition of the petrol tax ceiling.
Are there any lessons for other European countries? After all, since September 2021 — when natural gas supply bottlenecks began in the months leading up to the war — many of them have spent money on responding to the crisis. When oil and gas prices skyrocketed because of the war, these countries added to this kitten.
Germany accounts for 264 billion euros ($281 billion) – or nearly half – of the total 600 billion euros ($638 billion) earmarked for the EU countries’ energy crisis, according to the Bruegel-based think tank. in Brussels. Germany’s bailout measures accounted for 7.4% of the country’s gross domestic product (GDP). This is followed by Lithuania (6.6%), Greece (5.7%), the Netherlands (5.3%) and Croatia (4.2%).
But while France and Spain are imposing price ceilings and reducing fuel prices to help reduce high costs, others – including Germany – have focused the most on providing financial support. directly to vulnerable populations, while introducing measures such as tax cuts on motor oil and a surprise tax on energy companies. In Austria, for example, households were given a one-time discount of 150 euros ($158) on their energy bills, with the most vulnerable receiving double that amount.
Germany’s emphasis on increasing household and business income has contributed to increased demand and higher inflation. In contrast, France and Spain have taken direct measures to contain inflation by controlling electricity prices, Wiffelaars said. However, from next year, Germany will start subsidizing electricity bills for consumers, which should help reduce inflation.
However, while France and Spain managed to keep prices in check and Germany led the way in financial support, the UK did not. The inflation rate of 11.1% in October was the highest in 40 years. And, unlike Germany, it has spent only the equivalent of 97 billion euros ($103 billion) in resources to deal with the energy crisis — just 3.5% of GDP. Britain had pushed back its plan to freeze energy prices for the previous two years, instead limiting that time 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 say. The biggest of them all: Should each country think of itself first?
Germany recently announced a new 200 billion euro ($210 billion) package to deal with rising gas prices, uncomfortable other countries have been calling for a coordinated EU response.
Philipp Heimberger, an economist at the Vienna Institute for International Economic Research, told Al Jazeera: “There is an ongoing debate about whether the EU should take collective measures or should it be done at the level. nation”. “As we move forward in the winter months, this debate will intensify.”
He believes that the crisis could prompt changes in industrial policies of major economies.
“In countries like Germany, much of the industry has benefited from low energy prices for quite some time,” he said. “We have to wait and see to what extent this leads to de-industrialization in Germany as the competitiveness of energy-intensive industries will decrease.”
Overall, Europe’s growing LNG demand makes it a key driver of global gas trade in the coming years, accounting for more than 60% of global net import growth between 2021-2025, according to the International Energy Agency.
However, Europe’s LNG terminals – where the fuel is converted back to natural gas – “is not well connected to the entire continent,” Cahill warned. “It’s a very fragmented system… that puts some countries at a disadvantage.” The region with the worst connectivity is Southeast Europe, which has traditionally been one of the regions most dependent on Russian energy.
Wijffelaars said the switch to renewables would help. But there, too, Europe needs to be careful. Europe imports 98% of the supply of rare earth elements needed to make electric vehicles, batteries and permanent magnets for generators from China.
“We know China has a lot of rare earths and raw materials that we might need for our energy transition,” said Wijffelaars. “However, to the best of our ability, we will have to diversify our portfolio as much as possible so as not to make ourselves dependent on one country.”
It is a mistake that Europe cannot repeat.
Each article in this series answers a Big Question in the minds of readers around the globe, decoding the different challenges affecting lives around the world.