From Green Deal to ‘Gas Deal’: the green transition in the post-Coronavirus era

A study elaborated by the Strategic Research Foundation analyzes the consequences that the coronavirus pandemic could have on the new energy agreement
European Commission President Ursula von der Leyen

REUTERS/FRANCOIS LENOIR  -   European Commission President Ursula von der Leyen speaks at an extraordinary session to present a Green Deal plan, at the European Parliament in Brussels, Belgium, on 11 December 2019

"I want Europe to become the world's first climate-neutral continent in 2050. In order to make this possible, we must take courageous steps together. Our current target of reducing our emissions by 40% by 2030 is not enough. We must go further, work harder to achieve more," said the current President of the European Commission Ursula von der Leyen during a speech in the plenary session of the European Parliament on 16 July 2019. In December of that year, she was the person in charge of presenting the EU Green Pact, a plan known as 'EU Green Deal' which intends to make the European Union (EU) the first climate-neutral continent in the world. 

"The European Green Deal is our new growth strategy – for a growth that gives back more than it takes away. It shows how to transform our way of living and working, of producing and consuming so that we live healthier and make our businesses innovative. We can all be involved in the transition and we can all benefit from the opportunities," said Mrs von der Leyen during the presentation of the pact. She did not even imagine that just two months later the EU would have to face an unprecedented health crisis, the impact of which could influence the future of this agreement. The Strategic Research Foundation (FRS) has carried out a study entitled "The European Energy Transition after COVID-19: from the Green Deal to the Gas Deal", which analyses the consequences that the coronavirus pandemic could have on the new energy pact. 

The first case of coronavirus in the European Union was detected in France on 25 January. Even so, more and more investigations claim that the first cases in Europe could have occurred even a month earlier. Just a couple of weeks later, this pathogen had already spread over a large part of the old continent, with Spain and Italy being some of the countries most affected. The measures that the various EU states have had to take to deal with this crisis include closing external borders to non-essential travel, imposing confinement in certain cases and ensuring the supply of medical equipment. 

Contaminación sobre el cielo de Barcelona, España
REUTERS/ALBERT GEA - Pollution over the sky of Barcelona, Spain

These measures have led to an immediate slowdown in economic production, especially in some of the countries most affected by this pandemic. Economic analysts have warned of the economic and political consequences that such measures may have. The study carried out by FRS considers that this situation will have a direct impact on the EU's strategic plans, especially on one of the most ambitious: the Green Deal, considered to be one of the most important issues within the strategy for action of the new European Union. The current health crisis could threaten the financing of this pact due to the expected economic recession that the EU will have to face over the next few years. 

Madrid, which was one of the darkest places during the coronavirus crisis in Spain, also hosted the COP25 climate summit a few months ago, an event where a document was signed in which the participating states committed themselves to complying with the Paris Agreement. At the Paris Climate Conference (COP21), held in December 2015, 195 countries signed the first binding global climate agreement. This plan commits countries to prevent the average temperature of the planet from rising by 1.5 degrees in order to avoid the consequences of climate change.

The study prepared by FRS warns that, at present, few countries are able to achieve the objectives set out in this document, since this implies "not only remodeling the strategic sector, but also transforming our way of life". Faced with this situation, the European Union has had to face the challenge of creating a climate action strategy that will allow the states that make up this body to take the necessary measures to achieve a carbon neutral situation by 2050, in accordance with the objectives set by the Paris Agreement. 

Activistas climáticos de la asociación Acción No Violenta COP21 (ANV-COP21) sostienen al revés los retratos oficiales del presidente francés
AFP/THOMAS SAMSON - Climate activists from the association Nonviolent Action COP21 (ANV-COP21) hold the official portraits of French President Emmanuel Macron upside down

"This green deal aims to transform the EU economy into a fully sustainable one, leading to a change in the European Union's social and economic model, while providing the economic resources to enable a just transition. To this end, the European Commission will create a just transition fund for the region’s most dependent on fossil fuels of up to 100 billion euros. No one can be left behind", the Commission itself has explained on its official website. The plan has three very clear objectives: reducing greenhouse gas emissions, increasing the number of renewable energy sources and strengthening the energy efficiency ratio.

"Energy is a shared competence between the European Union and the Member States", they warn from the study carried out by FRS. The European Union operates through Treaties that need the acceptance of all 28 Member States to be implemented, a fact that directly influences the distribution of competence. The Community's external competences can be classified into three main groups. On the one hand, there are exclusive competences, when their exercise is entirely the responsibility of the EU, as is the case, for example, with trade policy. Secondly, there are shared or mixed competences, when the exercise of such competences falls to the EU and the Member States. And finally, there are the supporting competences, which are those in which the EU can only intervene to support, coordinate or complement the action of the Member States.

In some cases, there may be an overlap of competences which causes some confusion. The same occurs when we talk about climate policy, where a balance has to be found between the EU's ambitions and the actual commitment of the Member States. In this spiral of uncertainty, the EU has had to deal with the COVID-19 crisis, a pandemic that directly clashes with the objectives and needs of the long-awaited Green Deal. The FRS study questions whether the EU should put aside its Green Deal ambitions and find ways to tackle the major problems of climate change. 

Un automóvil  reposta hidrógeno gaseoso
PHOTO/AFP - A car refuels hydrogen gas

"It is urgent that the EU reviews its policy to save Europe's ambition in the fight against climate change," they warned, saying that the issue is also important in terms of political influence, as the European Commission has made the Green Deal one of the foundations of its mandate. "The most important thing here is to avoid transforming the Green Deal into a political lever for or against the Von der Leyen Commission. Opting for an all-or-nothing position would be the worst option for the EU as it could create more discord between member states depending on their economic situation," they stressed. 

At the moment and given the situation we are living in, the EU has to be able to find a way to allow Member States to meet the targets set by the Green Deal without harming their economies, especially in those actions that have a direct cost for European citizens. "The Green Deal's focus on renewable energy sources needs to be balanced to achieve a more realistic convergence between these resources and low-emission fossil fuels (e.g. nuclear power and gas)," explain the analysts in charge of analysing the impact of the coronavirus on the Green Deal. To be able to live solely on renewable energy, the electricity grids of the entire continent would have to be remodeled. This type of action will require significant funding at the national and European levels, which could be affected by the economic situation following the COVID-19 health crisis. 

From Green Deal to Gas Deal: scenarios and consequences 

The study carried out by the FRS has concluded that the EU should opt for traditional low-emission fossil resources, since this type of source would make it possible to continue with the high level of electricity production to which we are accustomed without having a direct impact on countries' economies. The main paths used by the different European states with regard to their electricity production have been through the creation or design of nuclear and thermal power plants, according to this study. 

However, despite the fact that nuclear energy is one of the main resources for tackling climate change, it cannot be considered a solution for the whole of the European Union, as it requires large capital investments, they warned in the FRS study. " The conversion from coal to gas is underway in most countries, allowing the EU to consider gas as an intermediate solution that would not be as costly," they said. An increasing number of EU countries have joined this type of policy, for example Poland, the Czech Republic and Germany. In this research they have also influenced the fact of non-electrical uses of gas. "Gas also has domestic uses (heating, cooking) and transport prospects, especially in the maritime use of liquefied natural gas".  

The negotiations on the future of the Green Deal and the coronavirus crisis have coincided with an oil price war between Russia and Saudi Arabia, a fact that for FRS analysts could be the "final argument for moving from the Green Deal to the Gas Deal". This price war began in early March during a meeting between the Organization of Petroleum Exporting Countries (OPEC) and ten other oil-producing countries (known as OPEC+). At that meeting, where the possible impact of COVID-19 on the industry was discussed, Saudi Arabia failed to convince Russia to implement a series of production cuts to counteract the drop-in demand. It did not take Riyadh a few hours to respond, and it did so by lowering oil prices to unsuspected levels. The world has since been watching the price fluctuations of the so-called black gold, a transformation that could change the future of the Green Deal.

Tanques de petróleo en una instalación petrolera de Saudi Aramco
REUTERS/MAXIM SHEMETOV - Oil tanks at a Saudi Aramco oil facility in Abqaiq, Saudi Arabia

The study conducted by the Strategic Research Foundation has highlighted the fact that the tensions in the world of oil between Saudi Arabia and Russia is not a new one, but one that began ten years ago. "It began with the rapid growth of unconventional oil production in the United States in 2009, as a result of the Obama administration's decision to end the military presence in Iraq and later in Afghanistan. The development, after the economic crisis, of a renewed panorama of oil production in the United States created a first shock in the oil and gas market, as in a few years the first importer became the first producer," they explained. Several years later, the tension between Russia and Saudi Arabia was growing, until in 2020, when Moscow refused to change its production ratio. 

This incident has had direct consequences on gas prices, which have risen from 2.2 USD/million BTU (Henry Hub prices) on the eve of 2020 to 1.64 USD/MBTU on 1 April. "This economic situation creates an opportunity for Europe, as gas has been considered for years as an important energy source in the transition towards the goal of zero carbon emissions," they said in the study prepared by FRS, an investigation that also analyzes the impact of this situation on European gas import infrastructure. Liquefied natural gas (LNG) is natural gas that has been created to be transported in liquid form. In recent years, the EU has been funding a number of projects related to this type of gas. According to this study, the infrastructure available in the EU orbit would allow gas to flow without the need for new investment. 

Un automóvil  reposta hidrógeno gaseoso
PHOTO/AFP - A car refuels hydrogen gas

Gas could be an alternative for reducing carbon emissions without directly and abruptly affecting the pockets of the thousands of households that make up the EU. "A rapid shift of national and European policies towards gas - at least in a medium-term perspective - would act as a cushioning policy until the continent's economy recovers," they said in this study. Faced with this situation, the European Union has a great challenge: to choose whether to continue with the Green Deal strategy without thinking about the impact it may have on the economy of the States or to bet on gas to achieve its objectives. "The next few months will be decisive for the future of the EU, or at least for the remaining years of the von der Leyen Commission. A gas agreement with more modest ambitions than the current Green Agreement would be a realistic way out that could mitigate the side effects of the expected economic slowdown across Europe," they concluded. 

Will the EU be ready to finance green transition projects once the coronavirus pandemic is over? Does Europe have the infrastructure in place to rely solely on renewable energy in less than 30 years? Is it possible to transform the Green Deal into a Gas Deal? What are the consequences of both? Over the next few months we will be able to find the answers to some of these questions, answers that will have the power to completely transform the future of the European Union's energy policy.