The War in Ukraine Upended Energy Markets. What Does That Mean for the Climate?
This article is part of our special report on the World Economic Forum’s annual meeting in Davos, Switzerland.
As world leaders, chief executives and nonprofit leaders descend on Davos, Switzerland, for the annual meeting of the World Economic Forum next week, war will be raging about 1,000 miles away.
Russia’s invasion of Ukraine almost one year ago has reordered the geopolitical landscape, sent ripples through the global economy and brought trench warfare back to Europe.
Yet beyond the enormous human suffering and catastrophic damage inflicted on Ukraine, its people and its cities, one of the war’s most profound impacts has been on global energy markets, and by extension, on the global fight against climate change.
For much of the last year, the effects of war sent energy prices soaring in many parts of the world, with Europe hit particularly hard.
Even without that market, Russia remains an energy giant. And coal has had a resurgence, subduing hopes for meeting goals to rein in greenhouse gas emissions.
Yet the outlook is not all grim, and nearly a year into the war, the story is not so simple. The Ukraine invasion has had mixed results when it comes to energy and climate, particularly in the long term.
Across Europe, gas bills nearly doubled and electricity costs spiked some 70 percent in the first six months of the war, according to the Household Energy Price Index, which tracks energy costs.
Costs were driven up for a variety of reasons. European countries began weaning themselves off Russian fossil fuels in a bid to inflict pain on Vladimir V. Putin’s economy. In turn, Russia sharply reduced its oil exports to European countries and in July cut natural gas exports to Europe.
But with supplies tight on the global market, Russia was able to remain a dominant exporter even without Europe, selling more of its supply to China and India over the last year.
“In the short term, Russia has been a winner because of the increase in the price of oil,” said Daniel Yergin, vice chairman of S&P Global and an energy historian.
What’s more, with European countries scrambling to buy gas and oil from other sources, energy costs began to spike. That had the effect of pushing some countries to turn to coal.
“Today’s energy crisis has given countries like India and China a reason to accelerate their coal plans,” said Jason Bordoff, cofounding dean of the Columbia Climate School at Columbia University.
Altogether, that was not a good scenario for the climate, which continues to rapidly warm as a result of fossil fuel consumption.
The vast majority of climate scientists say that in order to limit the extent of the warming, humans should transition to renewable energy as fast as possible.
High prices and short supplies prompted calls to produce more fossil fuels, and for a time it looked as if decades of progress in combating climate change would be erased.
But that might not be so.
While Russia managed to sell its oil and gas elsewhere in recent months, it has lost the European market for the foreseeable future.
“Putin has destroyed 22 years of economic integration with the West. And he has also slammed the door on his most important market, which is Europe,” Mr. Yergin said. “This is the last gasp of Russia as an energy superpower.”
More important, the war — and the sudden unreliability of Russia as an energy exporter — has prompted many countries to accelerate their development of renewable energy.
From England to Spain to Albania, countries across the European continent are rushing to deploy wind and solar power at record rates.
“Notwithstanding the fact there is a bit more coal being burned by Europe, Europe is doubling down on green. Notwithstanding the fact that India is buying up every bit of cheap Russian fossil fuels that it can, Asia is investing in green,” said Rachel Kyte, the dean of the Fletcher School at Tufts University.
“There is this sort of short-term supply shock story, but the moral of the story is that you don’t want to be dependent on fossil fuels. The moral of the story is to be as green as possible.”
The European Union is working to streamline permitting for renewable projects, countries are racing to build wind and solar farms, and some countries, including Germany, are slowing plans to phase out nuclear energy.
“On balance, the energy crisis we’re experiencing now, which is the most severe we’ve seen since the ’70s, is going to accelerate the clean energy transition,” said Mr. Bordoff. “It’s probably going to have a negative impact on emissions in the near term, but a positive impact in the longer term.”
Among the banks and financial firms that fund the energy industry, a similar dynamic is playing out. While many financial institutions have embraced environmental, social and governance goals — also known as E.S.G. — that include reducing the amount of capital they commit to fossil fuels, some have relaxed those restrictions.
“Some of the banks have moved away from some of their E.S.G. commitments over the last year, simply because of the urgency of addressing the energy crisis,” said Ian Bremmer, founder of Eurasia Group, a research and consulting firm.
At the end of the day, however, Mr. Bremmer believes that, “long term, all of this does redound to a faster transition to renewables.”
There are caveats.
While Europe and the United States, for example, have the money to rapidly build wind and solar capacity, poorer countries in Africa and Asia are scrambling to meet their immediate needs.
“I fear that this energy crisis will accelerate the clean energy transition in the developed world, but not in the developing world,” Mr. Bordoff said.
And in the United States, the past year was also a story of short-term energy shocks and a longer term investment in renewable power. Gas prices spiked in 2022 as oil markets tightened. Oil reserves were depleted as the Biden administration tried to bring down gas prices last year, and will need to be replenished in the years ahead.
At the same time, President Biden signed into law the Inflation Reduction Act, which includes a record $370 billion in spending and tax credits to fight climate change.
While prices have stabilized and Europe has so far benefited from a relatively mild winter, there are nagging concerns about the future. Even as European countries embrace renewable power, it will be years before those sources can fully replace fossil fuels.
“Europe is already on course to get through this winter,” Mr. Yergin said. “The big worry now, and we’ll hear this at Davos, is next winter, when they won’t have any Russian gas to put into storage.”
And while that is a dire scenario, it only reinforces what many experts say is one of the key lessons of the war so far: that renewable energy is not just good for the climate, but good for national security, too.
“If we were less dependent on globally traded oil and gas,” Mr. Bordoff said, “we would be more energy secure.”