By Ross Douglas, CEO & Founder of Autonomy
This weekend I invited my neighbours over for lunch. She is Russian and he is American. She had just returned from St Petersburg with her two young kids by getting the last seat on a train to Helsinki and then a flight to Paris. Like many people, we discussed what on earth motivated Putin to risk everything by invading Ukraine? While Anya thought the only logical answer was that the man had lost his mind, I believe he thought he would get away with it because Europe is dependent on Russian oil and gas exports.
The EU27 imports goods worth €158 Billion from Russia and exports €89 Billion to Russia. The vast majority of our imports are for oil and gas but we also import other essentials like fertiliser and metals like nickel, cobalt and copper. Sweden’s Northvolt Gigafactory sources nickel and cobalt from Russian mines to avoid sourcing from the DRC.
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Europe has become more dependent on Russian energy because we continue to consume more energy than we produce and our biggest sources of energy are still oil and gas.
At the time of the invasion, Europe was importing 40% of its natural gas and 30% of its crude and refined oil from Russia, with demand showing no signs of waning.
Putin believed he was bullet proof because of our inability to reduce our consumption or create sufficient alternative energy sources during his 22 years in power. Unfortunately, Angela Merkel believed it was safer buying energy from Putin then generating it from nuclear. Now that Putin has crossed a hard line, Russia’s fossil fuels are now doubly problematic. Not only do they heat the planet; they also fund imperialist warmongering. Even if Putin were selling us clean energy, that too would be problematic.
Sanctions are crippling Russia’s economy, as the West pushes for regime change by non-military means. The irony is that Europe continues to fund Putin’s war as it consumes his resources. Europe’s leaders will be studying the IEA’s 10 point plan to decrease Europe’s imports of Russian gas by one-third in only a year.
Anyone who has read Vaclav Smil (Professor Emeritus of Environment at Canada’s University of Manitoba) will know how difficult it is to replace fossil fuels with renewables. In this recent speech he explains that the world has reduced its primary energy from fossil fuels from 87% in 2000 to 83% in 2020. In those two decades the world has spent hundreds of billions of dollars on renewables, with only a 4% reduction to show for it. According to Cop26, if we’re going to meet the target of no more than a 1.5°C rise in temperature, then we need to halve that 83% by 2030. It took us 20 years to reduce the fossil fuel share of primary energy by 4%; how will we halve it in only 9 years?
The EU planned to use natural gas as a bridge to a green economy; gas is a convenient and relatively clean alternative to coal. Nord Stream 2 would have provided a reliable supply while we got renewables to scale. Now that the pipeline has been cancelled, Europe must rethink energy. Consumers like cheap and reliable energy. And that’s part of the problem. Low energy prices drive consumption, as SUV sales prove. SUVs constitute over 80% of US car sales; and around half of new car sales in Europe. Consumers are now stuck with the wrong vehicles for rising fuel prices. This is dangerous for politicians, as Macron discovered in those Jillet Jaune protests over rising fuel prices. If Europe wants to play a role in Putin’s demise, they will have to change course.
Firstly, we must double down on nuclear energy; it is zero–carbon, consistent for baseload generation and takes up minimal space. Germany is now considering extending the life of its existing nuclear plants.
Secondly, we need to be realistic about renewable energy and storage. They have an important role to play, but they are limited, as the Germans have found out, at their expense. Northern Europe is not great for solar and we are yet to figure out how to run low voltage power on scale from the sunnier south. While offshore wind works well, we are probably reaching the top of the S curve for performance. Battery prices are no longer declining as demand surges for battery metals. Nickel prices doubled in March as banks cut their exposure to Russian commodities.
Finally, if we want to play a role in Putin’s downfall, we need to radically reduce our energy demand. I switched off the heating in my apartment on the day of the invasion and don’t plan to turn it back on until Putin is out of a job. There is a war and sacrifices need to be made. Governments will either have to subsidise energy prices, or companies and consumers will have to radically change their energy consumption to stay within budget as oil and gas prices go through the roof. Fortunately, there are many mobility options that enable us to move at a fraction of the energy cost compared to an SUV. While engines and turbines increase efficiency slowly over time, digital systems have quickly enabled us to fill empty seats, access shared vehicles, and find our way around cities by foot and bicycle. Like Covid helped us reimagine how we work, we should use this war to reimagine how we consume energy and how we move. The transition to clean and conflict free energy will not be easy but the alternatives are dreadful.