Energy Crisis in Europe—What It Means for Switzerland and the United States
In 2022, business leaders and policymakers across Europe began to warn that the worsening energy shortage could well turn into a full-blown crisis. Energy companies and politicians alike put publics on notice that reduced energy consumption will likely become a necessity. Why are modern and prosperous countries facing this problem in the 21st century? How is Switzerland, dealing with the shortages—and what do they mean for the United States?
After Russia’s invasion of Ukraine in February 2022, Russian gas imports to the European Union shrank by more than 80 percent. As the EU is highly reliant on Russian gas for commercial and private heating and industry—Russia was Europe’s top gas supplier—wholesale prices of electricity and gas have surged as much as 15-fold since early 2021.
Europe’s energy problems did not start with this war, however. In September 2021, media were already reporting on “Europe’s energy crisis” as an established fact. As CNBC reported, “European power prices have spiraled to multi-year highs on a variety of factors in recent weeks, ranging from extremely strong commodity and carbon prices to low wind output.”
In October, Carnegie Europe posted an article asking whether “Europe’s energy crisis” is self-inflicted. In November, War on the Rocks published an article explaining that Europe
is facing a severe energy crisis that could lead to a very cold and dark holiday season across the continent. Natural gas prices are five times higher than they were a year ago due to a sharp rebound in demand from the pandemic, a colder than usual spring, increased and unanticipated Asian consumption, and the European Union’s own energy and climate policies. As a result, storage facilities are low, and states across Europe could face gas shortages or potential blackouts.
In December, the Brookings Institution released a report finding that:
The ongoing energy crisis of late 2021…has already had wide-ranging impacts on economics, the environment, and security…. The crisis has three distinct elements: COVID-19 and supply chain disruptions, greater interconnectedness of natural gas markets, and signs of energy price volatility during the energy transition away from fossil fuels.
While Europe did not run out of fuel in 2022, the International Energy Agency (IEA) warned that it could certainly run out in 2023. Three specific factors could lead to depleted, not just restricted, fuel supplies: (1) Russia could halt gas flows entirely, (2) winter has just begun (the record-high temperatures of early winter are not guaranteed to last), and (3) the global market for natural gas could suffer a shake up if the Chinese economy recovers as the government lifts its harsh COVID-19 restrictions.
EU Mitigation Measures
European governments have begun to implement measures to reduce consumption, as well as policies to mitigate the impact of the higher costs on consumers and businesses, such as price caps, tariffs, subsidies for energy-intensive companies, and liquidity or capital backing for energy companies.
According to the International Monetary Fund, however, such policies (1) have conflicting objectives (subsidies and price caps can make the underlying problem worse by increasing demand), and (2) lead to cross-border spillovers (subsidized energy consumption increases consumption, leading to higher wholesale prices across the EU).
Swiss Mitigation Measures
Not even a full month after Russia’s February 24 invasion of Ukraine, many countries were already accessing their energy policies. As Swissinfo.ch reported:
As the largest exporter of oil and gas combined worldwide, Russia represents a critical piece of the global energy puzzle. The invasion of Ukraine by Russia and the sanctions which followed have already impacted where oil and gas will come from in the future. The United States announced it is banning oil imports from Russia. Meanwhile, the European Commission has presented a plan to reduce the bloc’s reliance on Russian gas by two-thirds this year. Switzerland too is evaluating the security of its future energy supply and production.
Gas makes up roughly 15 percent of Switzerland’s total energy consumption—of which about half came from Russia. Like the countries of the European Union, Switzerland has been implementing measures to stave off energy shortages, or to deal with them should they occur.
In May 2022, the Swiss government outlined a plan to boost gas storage in neighboring countries—the goal being to counteract the disruption in Russian gas supplies. After Russia invaded Ukraine, Switzerland began to seek gas from other sources.
In July, the Swiss energy minister warned of natural gas shortagesand pushed for renewable energy to replace gas imports. That same month, the CEO of Swiss energy supplier Axpo warned that Swiss industry and households could face a power shortage and may have to ration electricity in the coming winter—a notion echoed by the Swiss government, which stated that its plan to address a possible gas shortage could including rationing.
In August, Switzerland set a voluntary gas-savings target of 15 percent for the winter, and the Swiss public began to buyemergency power generators. In September, the Swiss government set up a hydropower reserve. (Switzerland’s only natural energy sources are water and wood, and roughly 57 percent of the country’s energy needs are met by hydropower.) By November, one in 10 companies in Switzerland had scaled back output due to high electricity prices in Europe.
Neither the lights nor the heat went out in December, and Europeans were able to celebrate Christmas and New Year’s as they have, albeit at rising costs. European countries began the new year with an eye on how to manage their energy supply in 2023.
Hot Topic: Nuclear Energy
While Russia’s war in Ukraine and the European response—acting decisively in support of Ukraine—has severely limited the supply of Russian gas in Europe, gas is certainly not the only so-called clean and proven energy source.
Nuclear power is arguably the cleanest mass-producing energy source, and the nuclear power plants in Germany and Switzerland are arguably the safest in the world, yet both countries are phasing out this energy source. In July 2022, in the midst of warnings about shortages and talk of rationing, the decommissioning of the first of Switzerland’s five Swiss power plants remained on track. (Like Germany, Switzerland decided to end nuclear energy production in reaction to the disaster caused in Japan when a tsunami caused by an earthquake hit the Fukushima nuclear plant in 2011.)
Switzerland—which has pledged to reach zero-carbon emissions under its Energy Strategy 2050—was already facing a tough road ahead. That road has become more difficult.
In 2022, the European Union announced that nuclear energy is sustainable (“green”). Will European countries that are dedicated to shutting down their nuclear plants, especially Germany and Switzerland, reverse course?
Under President Joe Biden, the U.S. has pledged to cut U.S. carbon emissions in half by 2030, and, like Switzerland, to achieve a net-zero carbon economy by 2050. This means that electricity generation must be carbon-free by 2035. Which role will nuclear power play in achieving that goal?
The Watts Barr nuclear power plant in Tennessee opened in 2016—the first new plant to be built in the U.S. in 20 years. Two nuclear reactors have been under construction at Plant Vogtle in Georgia—they are billions of dollars over budget, and years behind schedule. Will watching their friends struggle on the other side of the Atlantic spur Americans to focus more on nuclear power?
Spillover Effects on the United States
How do Europe’s energy woes affect the U.S.? High energy prices in Europe affect the U.S. market, forcing up the price of U.S. natural gas. Bad for U.S. consumers, good for U.S. gas companies. With less Russian gas available, Europe is now competing on the global market for supplies, which pushes up prices worldwide.
And, the energy shortage is about more than energy. As pointed out on OilPrice.com:
It’s also the impetus for a major geopolitical reconfiguration at a global scale. No one knows exactly what the world’s energy and political landscapes will look like when the dust settles (which, by the way, will be years from now) but it’s guaranteed that it will be markedly different than it was the day before Russia…invaded Ukraine.
The IEA describes the current situation in its 2022 World Energy Outlook as a “global energy crisis of unprecedented depth and complexity,” stating that “there is no going back to the way things were.” As stated on OilPrice.com, the combination of the coronavirus pandemic and Russia’s invasion of Ukraine has “already reconfigured the energy trade worldwide, but the shockwaves to the global economy are just getting started.”
The United States, of course, is positioned front and center in any global shake up.
The Road Ahead
The road ahead is clearly long, hard, and uphill. The reasons for the increasingly global energy woes are many and complex. Switzerland and the United States will surely call on each other to face this challenge.
Additional Reading:
8 Consequential Energy Predictions for 2023, Forbes, January 2023
Europe’s Gas Price Cap Threatens to Intensify Energy Crisis, Bloomberg, December 2022
Europe Will Still Be Fighting and Energy Crisis in 2023, CNN, December 2022
What Europe’s Energy Crisis Means for America, The Heritage Foundation, October 2022
White House Alarm Rises Over Europe as Putin Threatens Energy Supply, The Washington Post, September 2022
Europe’s Energy Crisis Is Destroying the Multipolar World, Foreign Policy, September 2022
Europe’s Energy Crisis Conundrum, European Union Institute for Security Studies, January 2022
EU Countries Look to Brussels for Help with “Unprecedented” Energy Crisis, Politico, October 2021