EMERGING FROM THE WAR IN UKRAINE INTO A SECURE ENERGY TRANSITION.

• Author: Patrahau, Irina

INTRODUCTION

The European Union (EU) is slowly recovering from the most severe energy crisis to date, despite signs pointing to vulnerabilities over the last 15 years. The liberalization of the EU gas and electricity markets since the 1990s effectively placed private companies in charge of energy security. (1) In the absence of a centralized strategic vision, European companies steadily built a domestic energy system that relies on Russian natural gas and is unable to bounce back in case of disruptions. Once a geopolitical shock like the invasion of Crimea in 2014 materialized, the EU was reminded of its issues. Yet natural gas soon resumed flowing and initiatives to mitigate supply security issues were put on hold.

For a long time, supply security for critical raw materials (CRM) used in green energy technologies followed a similar path. The private sector developed and scaled wind parks, solar panels, and electric cars without much governmental involvement. The first notable EU initiative focused on CRM supply security was the EU Commission's CRM list from 2011. (2) It aimed to prevent undesirable dependencies on foreign actors but included no binding provisions. Until 2023, CRM supply security was inadequately addressed.

The war in Ukraine was a wake-up call for European policymakers. The electricity and natural gas crises of 2022 unraveled the scale of socioeconomic disruption that can be caused by energy insecurity. In response, the EU introduced an unprecedented number of initiatives in the field of security of supply, both in terms of conventional fuels (3) and the "net zero industry." (4)

In this essay, I analyze the impact of the war in Ukraine on the EU's approach to energy security, taking CRM as a case study. First, I make a comparative analysis of natural gas and CRM supply security approaches in the EU until 2023, showing that the dependency on Russian energy is not the only dependency the EU should be wary of. Based on this analysis, I draw lessons learned from the energy crisis in 2022 that the EU can apply to strengthen supply security in the energy transition. Finally, I argue that strategic competition in the energy transition goes beyond supply security: it also involves the race toward strategic autonomy and leadership in technological innovation. I also discuss industrial strategy as a weak component to the EU's current approach to CRM security and strategic competition.

ENERGY DEPENDENCE ON RUSSIA: AN ECONOMIC AFFAIR

The dominant assumption that market liberalization maximizes efficiency has ruled the European energy system since the 1990s. The First Energy Package is a set of European directives adopted in 1996 for electricity and in 1998 for natural gas, with the purpose of privatizing state monopolies and opening the energy market up for competition. (5) This market liberalization was completed by the Second and Third Energy Packages in 2003 and 2009, respectively. By then, the internal energy market had been established. European consumers could choose their preferred suppliers, who would compete for the best service provision and price.

With the creation of the internal energy market, the mandate to secure energy supplies was handed over from governments to companies. European companies competed in the internal market to provide the most reliable and affordable supply of natural gas and electricity. They signed long-term import contracts with players who could provide cheap supplies. Security of supply was not accounted for: no regulations were in place requiring geopolitical consideration to be built into the process or limiting the proportion of imports that can be sourced from one supplier.

Russia, one of the largest natural gas producers in the world, could supply natural gas to the EU for an affordable price through pre-existing infrastructure from Soviet times. Russian pipeline gas could be supplied at a cheaper price than, for instance, liquefied natural gas (LNG) could. Non-Russian suppliers were outcompeted. Slowly but surely, the EU import dependence on Russia increased while imports from other countries remained limited.

Time and again, economic decisions trumped geopolitical concerns in the EU's energy system, slowly leading to the crisis of 2022. The debate surrounding the Nord Stream 2 pipeline is a clear example. (6) The EU was torn between the economically-profitable decision to bring larger amounts of cheap natural gas primarily to Germany and Western Europe and a geopolitically-problematic choice to allow Russian state-owned Gazprom to become more dominant in Europe's energy system. (7) Central and Eastern European countries warned against this choice, but the economic argument again triumphed over the debate. After the invasion of Crimea in 2014, the EU established its "Energy Union" with the goal of stimulating solidarity between member states and building intra-European connections to mitigate the impact of possible interruptions in energy flows. (8) Nonetheless, the decision to build Nord Stream 2 was upheld. In 2018, domestic production of natural gas, specifically from the Netherlands, decreased due to induced seismicity related to the extraction of gas in the Groningen area, (9) which has led to the field's expected...