How European countries are spending billions on easing energy crisis

European governments are announcing emergency measures on a near-weekly basis to protect households and businesses from the energy crisis stemming from Russia's war in Ukraine.

How European countries are spending billions on easing energy crisis
Photo by Arthur Lambillotte on Unsplash

Hundreds of billions of euros and counting have been shelled out since Russia invaded its pro-EU neighbour in late February.

Governments have gone all out: from capping gas and electricity prices to rescuing struggling energy companies and providing direct aid to households to fill up their cars.

The public spending has continued, even though European Union countries had accumulated mountains of new debt to save their economies during the Covid pandemic in 2020.

But some leaders have taken pride at their use of the public purse to battle this new crisis, which has sent inflation soaring, raised the cost of living and sparked fears of recession.

After announcing €14billion in new measures last week, Italian Prime Minister Mario Draghi boasted the latest spending put Italy, “among the countries that have spent the most in Europe”.

The Bruegel institute, a Brussels-based think tank that is tracking energy crisis spending by EU governments, ranks Italy as the second-biggest spender in Europe, after Germany.

READ ALSO How EU countries aim to cut energy bills and avoid blackouts this winter

Rome has allocated €59.2billion since September 2021 to shield households and businesses from the rising energy prices, accounting for 3.3 percent of its gross domestic product.

Germany tops the list with €100.2billion, or 2.8 percent of its GDP, as the country was hit hard by its reliance on Russian gas supplies, which have dwindled in suspected retaliation over Western sanctions against Moscow for the war.

On Wednesday, Germany announced the nationalisation of troubled gas giant Uniper.

France, which shielded consumers from gas and electricity price rises early, ranks third with €53.6billion euros allocated so far, representing 2.2 percent of its GDP.

Spending to continue rising
EU countries have now put up €314billion so far since September 2021, according to Bruegel.

“This number is set to increase as energy prices remain elevated,” Simone Tagliapietra, a senior fellow at Bruegel, told AFP.

The energy bills of a typical European family could reach €500 per month early next year, compared to €160 in 2021, according to US investment bank Goldman Sachs.

The measures to help consumers have ranged from a special tax on excess profits in Italy, to the energy price freeze in France, and subsidies public transport in Germany.

But the spending follows a pandemic response that increased public debt, which in the first quarter accounted for 189 percent of Greece’s GDP, 153 percent in Italy, 127 percent in Portugal, 118 percent in Spain and 114 percent in France.

“Initially designed as a temporary response to what was supposed to be a temporary problem, these measures have ballooned and become structural,” Tagliapietra said.

“This is clearly not sustainable from a public finance perspective. It is important that governments make an effort to focus this action on the most vulnerable households and businesses as much as possible.”

Budget reform
The higher spending comes as borrowing costs are rising. The European Central Bank hiked its rate for the first time in more than a decade in July to combat runaway inflation, which has been fuelled by soaring energy prices.

The yield on 10-year French sovereign bonds reached an eight-year high of 2.5 percent on Tuesday, while Germany now pays 1.8 percent interest after boasting a negative rate at the start of the year.

The rate charged to Italy has quadrupled from one percent earlier this year to four percent now, reviving the spectre of the debt crisis that threatened the eurozone a decade ago.

“It is critical to avoid debt crises that could have large destabilising effects and put the EU itself at risk,” the International Monetary Fund warned in a recent blog calling for reforms to budget rules.

The EU has suspended until 2023 rules that limit the public deficit of countries to three percent of GDP and debt to 60 percent.

The European Commission plans to present next month proposals to reform the 27-nation bloc’s budget rules, which have been shattered by the crises.

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Can Norway be both a climate leader and a major oil and gas producer?

Norway is a world leader on electric vehicles and CO2 capture, and set a 55 percent emissions reduction goal for 2030 a year before the EU. But can it combine climate leadership with its oil and gas industry?

Can Norway be both a climate leader and a major oil and gas producer?

In the run-up to the UN Climate Change Conference held over the next two weeks in Dubai, a group of 200 top researchers based in Norway published an open letter to Prime Minister Jonas Gahr Støre, calling on him to bring a pledge to end oil production in Norway to the conference.  

“We, as members of the scientific community, ask you to restore Norway’s climate leadership,” they wrote. “This can only be achieved if you commit, in a similar way to our neighbouring country Denmark, to an end date for the extraction of oil and gas.” 

If Støre were to do this, they argued, it would make Norway a trailblazer at the summit. 

Støre responded, telling the VG newspaper that his government would do no such thing.

Continuing with oil exploration, he argued, was in no way incompatible with taking responsibility for fighting climate change.

“At the climate summit in Dubai, we will do our part to ensure that the countries of the world can achieve the goal of keeping global warming to 1.5C.” 

Is he right?

Norway’s Foreign Minister, Espen Barth Eide, when attending the UN Biodiversity Conference in Montreal in December 2022. Photo: Lars Hagberg/AFP

How does the oil and gas industry contribute to Norway’s emissions?  

Norway’s oil and gas industry is responsible for about a quarter of domestic emissions, but if you look at the total emissions released by burning oil and gas produced in Norway, the impact is ten times bigger. 

According to Statistics Norway, about 12 million tonnes of CO2 equivalent were emitted in 2022 as a result of oil and gas extraction on Norwegian territory. That is 25 percent of the total emissions of 48.9 million tonnes. 

“The oil and gas industry is currently the main source of greenhouse gas emissions in Norway, so obviously it has to play a major part if emissions are to be brought down,” said Bård Lahn, a researcher at Oslo University’s TIK Centre for Technology, Innovation and Culture. 

Figures put together by Robbie Andrew, a senior scientist at the Center for International Climate Research in Oslo (Cicero), however, show that annual worldwide emissions from all the oil and gas produced in Norway are expected to hit 475 million tonnes in 2023. 

That is 40 times the domestic emissions from Norway’s oil and gas production. 

He expects total emissions caused by Norwegian oil and gas to climb to about 503 million tonnes in 2025 as the giant Johan Sverdrup field reaches peak production. After this, emissions are expected to decline. 

Graphic: Robbie Andrew/Cicero

Does Norway’s oil and gas industry make it harder to reach its climate goals? 

At a debate on the environment ahead of municipal elections in September, Støre was the only one of Norway’s party leaders who said he believed the country was on track to meet its 2030 climate goal.

Norway has just six years to reduce its emissions to 55 percent of 1990 levels. In 2022, they were down just 4.6 percent, and a big reason why emissions have not fallen more has been the growth of the oil industry.

The oil industry has increased its domestic emissions by 46 percent over the period. 

Lahn pointed out that because the oil sector is part of the EU emissions trading system (ETS), Norway is not legally obliged to cut emissions in the sector to meet its EU targets, as oil companies can instead buy emissions allowances. 

“So the question is really whether Norway should continue to pay for emission reductions in other countries to shield its oil and gas industry from emission reductions, and how such a strategy will look as the rest of Europe is increasingly decarbonizing.” 

Emissions from the oil and has sector down about 20 percent from 2015, and saw a small decline in 2022, something Andrew said was more of an achievement than many realise, given that the giant Melkøya LNG plant had come back online after an 18-month outage.  

“Emissions didn’t go up, and the reason for that is that at the same time, a lot of other things were happening that were cutting emissions,” he said.

These included the connection of the Edvard Grieg platform to the mainland power grid. 

The Ministry of Petroleum expects domestic emissions from oil and gas production to fall a further 10 percent by 2027.

The oil industry itself has committed to a goal of reducing its own emissions by 50 percent by 2030.

But its main route to doing this is connecting more offshore platforms to the domestic grid, which is incresingly blamed for pushing up power prices. 

“This is an increasingly controversial measure, so it remains to be seen whether it can actually be met,” Lahn said. 

Is there any international pressure on oil and gas producers to cut production? 

There will be a battle at the COP28 summit over setting a date and deciding on the language for a phase-out of fossil fuel use. 

The EU’s official negotiating position is that the conference should agree that meeting the 1.5C goal “will require the global phase-out of unabated fossil fuels”, something it, along with Norway, pushed for but which did get into the text at the COP27 in Egypt last year. 

Outside the COP process, the governments of Denmark and Costa Rica in 2020 formed the Beyond Oil and Gas Alliance, which has so far got 12 countries to commit to issue no more licenses for oil and gas exploration and set a date for ending oil and gas production. 

So far, though, no major oil producer has signed up. 

What is Norway’s position on phasing out oil and gas production? 

Norway’s Environment Minister, Espen Barth Eide, was asked by the UAE ahead of COP28 to “undertake informal consultations on behalf of the COP 28 President Designate” with countries attending on what their views are on what should be discussed and agreed on “mitigation”.

“Most countries agree that we need to speak more seriously about the energy transition,” he told the UAE newspaper, The National, about his findings.

“Some countries will emphasise the new part – bringing in more renewables, more energy savings and more uses of green, renewable or otherwise non-emitting energies – some other countries want to be more explicit about the phase-down or phase-out of coal, oil and gas”.

Norway’s position, he said, is that the “phase out of unabated fossil fuels” should be achieved by targeting consumption and not by setting targets or an end date for oil and gas producers.

“We insist that it cannot only be a supply-side transition. It has to be demand-side as well, which means we have to change the way we use energy,” he said.

In his response to the Norwegian scientists’ open letter, Støre made the same argument against setting targets for lower production off fossil fuels. 

“We know that the demand side for oil and gas will fall, and that means that the phasing out will take place gradually,” he wrote.  “I do not believe that setting an end date will give European countries the energy they need.” 

So can Norway combine being a climate leader with being an oil producer? 

Lahn is not so sure, arguing that the Paris Agreement goals in practice will mean getting rid of fossil fuels almost completely. 

“I think Norway’s balancing act is becoming increasingly difficult,” he said. “I think the pressure on fossil fuel producers is going to increase over the coming years, and this year’s COP in the UAE really helps put the spotlight on the role of fossil fuel producers.”