How Europe Can Slash Fossil Fuels and Frustrate Putin

After Russia’s unprovoked assault on Ukraine that began last month, the European Union, the United Kingdom, and other European countries have imposed unprecedented, sweeping sanctions on Russia’s financial systems, but they continue to give the country billions of dollars in payments for fossil fuel imports, including oil, gas, and coal.

The assault shocked Europe out of the quiet acceptance of the region’s dependence on Russian fuel imports. The European Union has moved with haste to accelerate the rollout of clean energy to replace fossil gas. The European Commission proposed a plan to cut gas import flows by two-thirds by the end of 2022, through a combination of clean energy and energy conservation measures, as well as increased imports through pipelines and existing terminals for liquid gas tankers. By 2030, the commission aims to entirely replace imports from Russia with clean energy and energy efficiency.

Yet, in the first two weeks of Russia’s invasion of Ukraine, the EU likely paid upwards of $8 billion to Russia for fossil fuel imports. What is still missing in Europe’s response are mechanisms that would translate these actions into actual reductions in the cash flow to Russia in the coming days and weeks. This is essential to support Ukraine’s struggle for survival and to undermine Russian President Vladimir Putin’s ability to carry out the offensive, if not the willingness.

Europe has a structural dependence that makes it impossible to cut off all imports immediately without an extremely painful contraction in energy use. Oil and gas pipelines connect Russian fields directly with European consumers. For gas, there aren’t enough pipelines or liquefied natural gas (LNG) terminals in place to replace the gas imports from other sources. Oil refineries are designed to process Russian oil grades. Even some coal power plants have been designed to fire specific Russian varieties.

More than a third of the Russian federal budget is funded from oil and gas revenues, half of which come from Europe. The dependence gives Putin not only a steady flow of cash but also leverage. Despite Moscow’s pattern of using its gas supply as leverage against its neighbors and a lot of talk in the EU of cutting dependence on energy imports after Russia first started aggressions against Ukraine in 2014, Europe has no plan for what to do if Putin decides to cut off or throttle supply.

Putin deliberately prepared to exploit this reliance in the runup to the attack, with Russian energy giant Gazprom holding back gas deliveries to Europe and emptying the gas storage it operates in Germany at the start of this winter.

The EU now has to grapple with three different competing priorities: first, cutting off as much of the flow of fossil fuel money to Russia as possible, immediately. The second priority is eliminating the structural dependency on imports from Russia that contributed to Europe’s weak response to Russia’s earlier aggressions and served to both embolden and enrich Putin’s regime. And the last is preparing for a potential cutoff of Russian supply, which could otherwise create a full-blown energy crisis next winter. There are both synergies and trade-offs between these priorities.

The structural dependence between the EU and Russia cuts two ways, and that’s why an EU embargo against Russian fossil fuels would be very impactful. Russia’s oil and gas exports through pipelines obviously have no other destination—capacity to China is limited and already highly utilized. The majority of Russia’s seaborne exports travel through ports on the Baltic and Arctic seas that are a very long way from other potential markets. In addition, Russia’s war has caused a crisis for the other major shipping route, the Black Sea, raising costs and limiting the headroom to increase volumes.

Oil made up three-fourths of the value of fossil fuel imports to Europe from Russia in in 2021, but only a fifth of Europe’s oil consumption comes from Russia. All countries in the Organization for Economic Co-operation and Development have a strategic oil reserve that’s good for 90 days of consumption. The West could replace the imports from Russia from the oil reserve for a year and still have some left. Putting together the reserves of the United States, United Kingdom, and EU, there is even more of a cushion.

Of course, European countries and the United States can and should replace much of the imports by reducing consumption and importing from elsewhere. But that’s not even strictly necessary in the short term.

On coal and gas, a hefty import tariff would be the most plausible step. It would ensure that all European buyers buy from other sources whenever possible and impose a steep discount on purchases from Russia on spot markets—which is where the huge windfall is being raked in. An import tariff doesn’t prevent purchases when its logistically or technically not possible to substitute for Russian supply, avoiding cases where there’s a very high cost for little gain.

In 2019—a more representative year than 2020 and 2021, which were affected by the COVID-19 pandemic—the EU and the U.K. imported 38 percent of their gas, 22 percent of their oil, and 21 percent of their coal from Russia.

Europe is now determined to wean off this dependence, as shown by rapidly prepared plans to accelerate the rollout of renewable energy—what German Finance Minister Christian Lindner has now called “freedom energy.” The European Commission published a plan this week for completely eliminating fossil fuel imports from Russia by 2030, and the German government announced it is aiming for 80 percent renewable electricity by 2030 and 100 percent by 2035. These timelines are ambitious politically, but they are certainly technically and economically achievable.

The structural dependency is greatest for gas. Europe must overhaul the sectors that consume the most gas—buildings and the power sector—by retrofitting buildings with heat pumps, improving insulation and windows, and ramping up wind and solar power production. These quick-to-deploy solutions will begin to make a difference immediately, but achieving sufficient scale will still take years. The major suppliers of the key technologies needed for this transition, including the United States, could help by increasing supply to Europe.

Technically, eliminating gas imports from Russia without increased supply from other sources could even be achieved by halving the use of gas in these sectors. Thirty-nine percent of Europe’s gas is used in buildings, 32 percent for electricity generation, and 22 percent in industry.

The good news is that many European countries have already rolled out building insulation and heat pump installation programs in response to sky-high gas prices since late 2021. The European Heat Pump Association estimates that a record 2 million units were sold in 2021, up 25 percent from the previous year.

On the supply side, Europe would need a 40 percent increase in total clean power generation to replace Russian gas imports. This would take nine years at 2021 rates of investment, so those rates must accelerate severalfold. Wind and solar power, as the fastest energy sources to deploy, will play a key role. Another priority is biogas, natural gas produced from waste, which can replace fossil gas directly.

Besides scaling up clean energy, Europe needs to adjust its policies to prioritize cutting gas use, instead of the conventional formula of first getting rid of the most carbon-intensive fossil fuel—coal—followed by oil and then gas.

Gas demand is highly seasonal. This winter’s peak demand period has already passed, but gas storage is at record low levels. Therefore, Europe will need to cut back on gas consumption immediately while importing as much as possible from sources other than Russia to fill up reserves to weather the next winter.

Despite the accelerated rollout of clean energy, stopgap measures will be needed, especially for the next two winters. Among these stopgap measures, Europe must import all the gas it can from other sources. However, there’s limited capacity to import LNG, as it requires specialized terminals for transportation, and supply is limited. (Replacing imports from Russia would swallow up 40 percent of current global LNG trade.) Most of this trade happens under long-term contracts, and at the current gas prices, every country with LNG export capacity is already shipping as much as it can. To maximize imports, Europe would likely need to negotiate with friendly importer countries, such as Japan and South Korea, as well as exporters, such as the United States, Australia and Qatar, to reroute cargoes under long-term contracts.

Europe should also keep its nuclear plants open. Germany recently closed down four nuclear reactors and is scheduled to close three more, while the French nuclear operator EDF cut its 2022 output forecast due to outages. Although this is a controversial option, it is essential to maximize the supply of electricity that doesn’t depend on fossil fuels.

Existing coal and fuel oil plants need to be prepared to run more—but not on fuel imported from Russia. This requires identifying alternate sources of coal for numerous power plants designed to burn specific Russian coal varieties. Power plants that were scheduled to retire will likely need to be kept on, at least as reserve.

If Putin does decide to cut supply, conserving and rationing energy will also be needed. In demonstrations against Russia’s initial assault, many carried signs saying they’d rather freeze than finance Putin’s war. Even lowering indoor temperatures by a couple of degrees would go a long way. But voluntary measures by the public may not be enough by themselves; governments will need to regulate for a tough year, including rewarding consumers for using less. Ensuring supply requires European coordination on gas imports, consumption, and reserves. The countries with the most capacity will have to import more than they use and supply the gas to other countries. They will need to keep supplying gas to each other even if storage runs low.

In this scenario, the measures to get through next winter would be costly and require public support for the most affected—as well as some tolerance for inconvenience. Amid all this, Europe will need to front-load and scale up green investments under the European Green Deal and in national programs. Russia’s brutal assault has shone a spotlight on the link between fossil fuels and conflict, and it may finally galvanize the European public and decision-makers to break out of this dependence.

Correction, March 11, 2022: This article has been updated to correctly indicate who described renewable energy as “freedom energy”; it was German Finance Minister Christian Lindner.