With gas supplies under threat from Russia, Europe is facing a stark choice: Either save up on gas starting this summer or risk facing the winter colder and poorer.
In response, the EU has drawn up an “economy of war” strategy, requiring countries to pool economic losses. The goal is to start slashing gas use preemptively, and in a coordinated way across countries, so as to minimize the drawbacks of a chaotic shut-off.
But these plans are running into resistance from countries and industries that don’t want to share the burden — even if the alternative of going solo is costlier overall.
“We are in a situation where one needs to decide in the best possible way how to allocate resources,” said Georg Riekeles, associate director at the European Policy Centre, a think tank. “It’s very difficult to completely socialize or mutualize the cost of the crisis when the choices that are conditioning [the current situation] have been national.”
If Europe doesn’t save gas, it will likely face shortages this winter, the International Energy Agency has warned. National efforts to reduce energy consumption include an information campaign in Germany to nudge people to take fewer showers and turn down air conditioning and French appeals for “energy sobriety” — encouraging businesses and public buildings to turn down the thermostat in winter and switching off unnecessary lights at night.
But the scale of consumption reduction needed is beyond the sum of voluntary actions. That’s why the European Commission will unveil on Wednesday a “winter preparedness plan,” including binding consumption reduction targets, aimed at minimizing economic losses in case of gas curtailment.
By cutting demand starting this summer and using particular criteria — such as a given industry’s role in fulfilling basic societal needs, its downstream and cross-border impacts and the substitutability of its products — the EU could contain adverse economic impacts to 0.4 percent of GDP on average, the Commission estimates. But the bloc could lose up to 1.5 percent of GDP if no action is taken and the winter proves to be severe.
Diversifying gas sources and letting it flow freely within the bloc in the event of a Russian gas shut-off would buffer economic losses “because reduced consumption is distributed across all countries connected to the global market,” the International Monetary Fund warned Tuesday. But a gas-hoarding scenario would be worse for particular countries like Hungary, Slovakia, the Czech Republic and Italy — which could lose up to 5 percentage points of output.
Beggar thy neighbor
Key details of the EU plan, like how cuts would be distributed across countries, are still being worked out. But it’s likely to face resistance as no one wants to be in the first in the line of fire if it comes to gas curtailment.
Big gas guzzlers like the chemical industry argue they’re essential to consumers and industry alike and shouldn’t take the first hit.
No gas for chemicals means “no chemicals for yeast, no yeast for bread,” said Marco Mensink, director general of chemical lobby CEFIC. It also means “no chlorine for drinking water, no drinking water … and no active pharmaceutical ingredients, no drugs.”
Industry groups are also warning of the damages to installation if Moscow were to cut supply, because some production processes, like glass, require a constant gas input. “Stopping gas inputs to the glass industry would be a catastrophically last resort option,” said Bertrand Cazes, secretary general of Glass Alliance Europe, a lobby group.
Countries that managed to stockpile enough gas for the winter, like Poland, or who are less reliant on gas, like Spain and Portugal, are reluctant to cut consumption and hurt their economies in the process.
“We are against imposing mandatory reduction targets. The solidarity mechanism must not lead to a reduction in the energy security of any member state,” said Polish Climate Minister Anna Moskwa.
“We don’t like it at all,” said an EU diplomat.
Other countries have already started hoarding. Last week, Hungary declared a state of emergency in energy, with plans to prevent gas from being exported to other countries beginning in August — provoking a fierce reaction from Brussels.
“Hungary has not notified the Commission of these planned measures,” Energy Commissioner Kadri Simson said in response. “Individual national restrictions affecting gas cross-border flows are unwarranted and can only exacerbate problems in the current gas market situation.”
“It’s very important that we don’t get into energy nationalism,” said Riekeles. “That would multiply the cost of the crisis overall for Europe.”