Can European know-how increase regional security in response to the Ukraine crisis?

There are many ways for countries to improve their energy security. In a letter to the Financial Times dated 21 April 2014, Donald Tusk, prime minister of Poland, advocates for an “energy union” that undermines Russia’s monopolistic position with the aim of reducing Europe’s “excessive dependence”. Words can deceive. As seasoned politicians well know, saying you are willing to cooperate is different from actually doing it.

Since the Ukraine crisis, Poland’s enigmatic position hasn’t changed much. What Mr Tusk proposes is a package of options based on a security-as-usual approach. He suggests drafting new agreements with European partners to negotiate bloc-based gas contracts with Russia, develop more gas infrastructure, and make “full use of the fossil fuels available”, including domestic coal and shale gas.

This is an agreement that could have been drafted back in the 1990s. Mr Tusk is well behind modern times. At that time, a reactive approach was understandable. Today however countries don’t have the luxury to treat the energy security issue in isolation any longer. The latest UN Intergovernmental Panel on Climate Change report sets out clearly how the basic conditions for human prosperity – food, water and energy security – will be undermined unless countries fundamentally change their approach to energy policy, in a effort to deliver both energy and climate security.

In the European context, Tusk’s strategy is not unique. It reflects a wider perception, driven by a reactive and competitive approach, among European governments that seek to maintain direct state control on resources, companies and transit routes. This view is biased against a larger set of security and economic options, such as increasing energy efficiency and creating new markets for low carbon technologies, far better suited to respond to existing and future challenges.

EU leaders need to work together to develop a long-term solution to the EU’s energy security concerns. It will require a collective approach to a collective problem. The theory is simple: helping your neighbours achieving energy security is a way to increase your own. Energy security should be seen as a public good which requires governments’ action to define objectives and set targets. So far, markets have proven unfit to drive large-scale efficiency uptakes in the European economies.

A more cooperative approach would help boost European energy security, but could also be an opportunity to develop closer ties to Ukraine as EU businesses offer a route to wean Ukraine off its dependency on Russian gas.

The strategic role of energy efficiency in industry and building

The heavy industry, especially the metal and chemical sectors, is a key player in Ukraine’s economy. It makes up for 22% of GDP and is the largest consumer of natural gas with 40% of domestic consumption. Internationally however it remains a weak actor. Energy intensity is on average three times higher than in the EU, this means that Ukrainian companies use three times as much energy, i.e. gas, to produce the same output as their European and US counterparts. Improving the energy efficiency of existing industrial operations is therefore of strategic importance. It would drastically decrease dependency on Russian gas, in fact on any gas imports, increase the competitiveness of the industry, and reduce the country’s CO2 emissions.

Yet without external help Ukraine will fail to implement the necessary reforms, as it remains too weak to manage change alone. Past governments have shown a chronic inability to reform the gas sector while attempting to diversify supplies away from Russian gas. Diversification projects ranged from investing in gas-to-coal switch technologies financed through a $3.7 billion deal with the China Development Bank, to the construction of an LNG terminal near Odessa, as well as importing gas from Western borders via Poland and Hungary.[1]

These efforts failed to address the structural vulnerabilities of Ukraine’s heavy industry fleet. A new approach to energy security needs to consider what energy efficiency can do to reduce gas dependency in practice. New studies show that a deep implementation of existing commercial technologies in industry alone can cut Germany’s dependency from Russian gas by 20% within the next 10 years, and by half if efficiency renovations in buildings are added. What would be the impact of applying these technologies in the Ukraine economy given that the potential savings are three times higher than in Germany?

European companies are at the forefront in designing and selling technological and digital solutions that enable other companies, as well as building owners and households, to reduce their energy consumption. Unfortunately however this important group of industry players are little heard and European governments have dedicated too little attention to the strategic role of progressive European businesses in fostering regional security. As recent declarations from a French Ministry show, EU’s energy efficiency policy is often depicted as “an unimportant obligation” which is “a kind of luxury" and “ok, but only after everything else”.

The attention of EU leaders has been much more devoted to China than its neighbours. In a recent visit, Germany’s economy and energy Minister agreed with the Head of China’s National Development and Reform Commission on a closer cooperation with German companies in the field of energy efficiency to respond to the dramatic environmental impact of China’s growth model on citizens and natural resources.

Strengthening cooperation for the delivery of cost-effective energy savings should also be priority in the development of a robust security strategy with Europe’s nearest neighbours. For example, a more open economic cooperation with Ukraine to foster low-carbon trade would create a major opportunity for European businesses to access new markets with high prospects, and for Ukraine to effectively tackle gas dependency from Russia, maintain and increase the competitiveness of its industrial capacity, and ultimately take control of its own future. Europe’s role in safeguarding peaceful co-existence and prosperity will be inevitably shaped by its ability to redefine energy security in a multipolar, resource-constrained world.


References

[1] Based on a 2012 agreement, Germany’s RWE began deliveries of natural gas via Poland. The gas purchased from RWE is up to 16% cheaper than the new gas price imposed by Moscow of $485 per 1,000 cubic meters. In April last year Ukraine began gas imports from Hungary.

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