Why are the IEA Demanding EU Solidarity on Energy?

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Why are the IEA Demanding EU Solidarity on Energy? | FutureBusiness

The energy crisis continues to dominate global business news. The latest salvo from the International Energy Agency (IEA) notes the critical importance of EU solidarity during the challenges Europe is likely to face through the coming winter.

As businesses across the continent tighten their belts, what’s the ongoing story?

Little Promise as Winter Closes in

The IEA says that as Russia’s continued curtailment of natural gas flows to Europe has pushed international prices to painful new highs, disrupted trade flows and led to acute fuel shortages in some emerging and developing economies, market tightness should be expected to continue well into 2023.

“Russia’s invasion of Ukraine and sharp reductions in natural gas supplies to Europe are causing significant harm to consumers, businesses and entire economies – not just in Europe but also in emerging and developing economies,” said Keisuke Sadamori, the IEA’s Director of Energy Markets and Security.

“The outlook for gas markets remains clouded, not least because of Russia’s reckless and unpredictable conduct, which has shattered its reputation as a reliable supplier. But all the signs point to markets remaining very tight well into 2023.”

IEA notes that Russia has, in all honesty, largely cut off gas supplies to Europe in retaliation against sanctions imposed on it following its invasion. This has deepened market tensions and uncertainty ahead of the coming winter, not just for Europe but also for all markets that rely on the same supply pool of liquefied natural gas (LNG).

Especially for high energy business users, this is self-evidently very bad news; predicting and planning costs is tough. In the UK, uncertainty now also exists over the timeline on energy price caps for business following a sense of chaos within the UK Government.

IEA says in addition to diversifying supply, the European Union and its member states have taken other steps to increase gas security, such as setting minimum storage obligations and implementing energy saving measures for the coming winter.

EU storage facilities were close to 90% full as of end of September, though the absence of Russian supply presents challenges for refilling them next year. So the key challenge for EU and wider global business is less of supply disruption and more of the unsustainable costs right now.

Wider IEA Commentary

IEA Executive Editor Fatih Birol notes that while Russia may have benefited from spikes in oil and gas prices triggered by its invasion of Ukraine, any short-term gain from rising export revenue is more than offset by the long-term loss of both trust and markets.

Moscow has alienated the EU, its largest customer, and sanctions on its oil and gas sector will hurt its future ability to exploit its resources by cutting access to vital technologies.

The second mistaken idea Birol notes in today’s markets is that the global energy crisis is a clean energy crisis. Birol says energy policy makers don’t complain to him about relying too much on clean energy.

On the contrary, they regret not having moved faster on solar, wind and energy efficiency. Blaming clean energy and climate policies for today’s global energy crisis moves the spotlight away from the real culprits – the gas supply crunch and Russia, he argues.

Birol’s points appear borne out in the IEA’s latest electricity stats for the OECD. These numbers show electricity production from renewable sources grew by 9.9 per cent year on year, confirming the positive trend observed over previous months.

Both wind and solar power production increased significantly, respectively by 26.6 per cent and 24 per cent year on year.

There appears consensus therefore that clean energy is not only scaling fast, it’s also where Governments and indeed business ought to be seeking answers to the Russian dilemma.

EIB and Wider Views

European Investment Bank (EIB) president Werner Hoyer has said: “The energy crisis triggers broader structural shifts for countries at all income levels, which come with huge investment needs. At the same time, high energy prices lead to a slowing global economy and investments at a time when these are most needed.

“No single institution can meet these tremendous needs for investment, nor bridge alone all the knowledge gaps that make projects successful. Working in partnerships is the only solution.”

And futher: “The energy and food security crisis, as worsened by the persistent effects of the three Cs of – Climate change, the COVID-19 pandemic, and Conflict (Russia’s war in Ukraine), make meeting the Sustainable Development Goals even more challenging,” said Dr. Akinwumi Adesina, president of the African Development Bank Group.

“We as Multilateral Development Banks and Public Development Banks have a collective responsibility to urgently find new and creative ways to bridge the $2.5 trillion global financing gap to achieve these goals by 2030.”

Rémy Rioux, Chairman of Finance in Common, chairman of the International Development Finance Club (IDFC) and Chief Executive Officer of the Agence Française de Développement (AFD) argues that as the world is facing multiple crises, from the COVID-19 pandemic to the war in Ukraine, with its impacts on global economy, energy and food security, we need to join forces and finance at-scale solutions.

“This is the purpose of Finance in Common – the community of all Public Development Banks, at multilateral, regional and national levels, gathering for the third time in Abidjan this week. Through strengthened technical and financial cooperation, I believe we can collectively help overhaul the global financial system and unleash the trillions of dollars of SDG-compatible investments needed.”

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A Collaborative Solution

The messaging coming from leaders of top global thinktanks this month seems clear. The energy crisis is going to worsen through winter and no simple solutions are to hand. Massive scale funding is needed to leverage both sustainable business and society in the right direction.

Certainly, clean energy will help, and one day it is very likely today’s crisis will be seen to have acted to hasten sustainable change and the opportunities that represents to both businesses and people. But for now, tough times remain, will little immediate panacea available.

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