The EU is facing another crisis, following in the footsteps of developments. After the crisis of the refugee-immigration problem, the confrontation of the pandemic, but also the crisis of the geopolitical weakness (AUKUS), it is now sinking in the new energy crisis.
The problem is not only in the high degree of complexity of decision-making that always delays EU decision-making, but in the fact that both Brussels and its respective institutions have a misconception of reality.
Officials in Brussels believe that international gas prices are six times higher than they were 12 months ago or that China, the most energy-intensive and polluting economy on the planet, accounts for more than 50% of world production carbon, which is increasing its dependence on coal to cover its energy deficit, is a common occurrence of simple fluctuations that do not affect the EU energy strategy.
The mistakes of the EU
The EU’s mistake is to turn energy into a stock market. The result is an increase in systemic instability and the speculative mood of energy participants. But a healthy energy market should include the required daily market price to effectively address producer and supplier imbalances and not to allow these fluctuations to enter directly into consumer tariffs. The largest percentage of consumption must be based on the supply of fixed prices, through long-term contracts.
These prices should reflect the long-term average cost of energy and contain risk premiums against extreme stock market fluctuations. In this way energy crises are avoided. Consumer tariffs must reflect this proper organization of the energy market, through the fixed price they will pay and always in relation to the average long-term total energy cost.
The current stock market pricing model in the EU energy sector is incorrectly structured because it reinforces uncertainty and speculation. The interventions of the governments of the member countries are limited at budgetary level and always in relation to the dimensions of the problem and simply transfer part of it by adding costs to their state budgets.
In the end, the reluctance of the European Institutions to intervene rationally in the system that has been set up will force the Commission to instruct the governments of the Member States to use their European Recovery Fund funds for the green transition of the economies to cover budget increases in energy.
The Solutions for the EU
• Reactivation of lignite-fired power plants throughout Europe.
• Reactivation of nuclear power plants for electricity generation.
• Reducing the use of natural gas in electricity generation.
The use of lignite from other countries (Data, 2019)
• South Africa relies on 90% of its lignite electricity generation. India relies on lignite to produce 72% of its electricity.
• China relies on 65% lignite to generate electricity.
• Japan relies on 32% respectively.
• The United States relies on 25%.
• The EU at 17%.
The global average of electricity dependence on lignite is 37%. No other country adopts the EU’s “Green Transition” policy. The EU “shoots itself” by rapidly moving away from coal (please read the analysis entitled “Green Transition: The EU is “shooting” itself“) enhancing the comparative energy and development advantage of countries such as China, India and the USA.
The EU’s mistake is that it supports its rapid decoupling from coal and its transition to green energy, which is entirely imported from Russia.
- Natural gas is also a polluting fossil fuel.
- Combustion of natural gas produces about half of the gaseous pollutants from the combustion of coal and lignite.
- The EU has not taken into account in its planning the changes in the International Gas Market. The market share of liquefied natural gas LNG increased with the cargoes of the Greek ships that transport it negotiating in the spot market.
- The demand from China, India, Japan, for LNG increased, thus putting upward pressure on the international markets.
Strengthening the Greens’ influence in Germany and throughout the EU will make it even more difficult for the EU to adapt to the complex energy reality and implement the necessary structural measures.
