As of today, EU countries are no longer allowed to import coal from Russia. The coal embargo, part of the EU’s fifth sanctions package against Russia, is taking effect and is supposed to further weaken the Russian economy financially. Read how many billions are at stake in the News.
The threat of Russia cutting or suspending gas supplies to Europe remains real. In today’s Opinion, Daniel Gros of the Centre for European Policy Studies explains why the German economy could weather cuts better than many other European countries. Germany imports a lot of natural gas but is relatively frugal.
The EU Parliament has long since decided to phase out internal combustion engines by 2035, and the environment ministers have also agreed to the EU Commission’s proposal but with a caveat: synthetic or e-fuels. This would allow cars with internal combustion engines to be registered beyond 2035 if the e-fuels are produced in a climate-neutral way. The environment ministers are not alone with their wish for this loophole to be included; at the German federal level, Chancellor Olaf Scholz also supports it – after consulting Commission President Ursula von der Leyen. Markus Grabitz dives into the details.
I wish you an interesting read.
Is there an agreement between EU Commission President Ursula von der Leyen and German Chancellor Olaf Scholz on the use of synthetic fuels in cars? At least, that is what is being reported in Berlin. According to the report, Scholz has lobbied his former cabinet colleague and current Commission head for the Commission to make a regulatory proposal for so-called e-fuels in private transport in the near future.
The background to this is the agreement reached by the environment ministers of the 27 EU countries on the EU Commission’s proposal to stop allowing new vehicles with internal combustion engines from 2035. The Environment Council had made the general direction on June 28 and gave the green light to the end for the internal combustion engine on the part of the chamber of countries.
The EU Parliament had previously passed the same resolution by a large majority. However, under pressure from Italy and several Eastern European countries, the environment ministers also opened a window for synthetic fuels. The following wording was included: “The Commission will make a proposal on how vehicles that run on CO2-free fuels can also be registered after 2035.” The wording still contains the addition that this will be done “outside the systematics of CO2 fleet legislation”.
Thus, at least the body of member states has held out the prospect of synthetic fuels being used in cars and vans beyond 2035. What is clear, however, is that the EU Parliament, as co-legislator, had rejected e-fuels. It, therefore, remains to be seen whether the member states can wrest approval from the Parliament’s negotiator in the trilogue, which will be negotiated under the Czech Council presidency from the fall.
The FDP, which had campaigned massively for the use of synthetic fuels in the Bundestag election campaign, nevertheless regarded these formulations as a victory on its own behalf. They said it was clear that cars with internal combustion engines could still be registered after 2035 if they ran on synthetic fuels. Synthetic fuels are produced using hydrogen as an energy carrier and are virtually climate-neutral if the hydrogen is produced using solar or wind energy. Synthetic fuels are processed in a refinery to produce gasoline, diesel, or even aviation fuel and can already be used by all internal combustion engines.
What weight does the wording of the environment ministers have? The fact is that it is merely a so-called recital. Recitals in a legal text are not “legally binding”. The Vice President of the EU Commission, Frans Timmermans, is fully committed to the battery-electric solution in the transport transition and wants to avoid the use of e-fuels in cars at all costs. Timmermans has already indicated that, for him, the 2035 ban on internal combustion engines is no longer being debated. He also has no plans to make a proposal on synthetic fuels, he announced after the Environment Council.
This is where Olaf Scholz comes into play. According to reports in Berlin, the issue is close to the Chancellor’s heart, and he has lobbied the Commission President to ensure that the Commission’s initiative is implemented promptly. Von der Leyen is said to have signaled her approval.
One thing is clear: For the proponents of e-fuels, time is running out if the proposal is to be considered by the co-legislators Parliament and Council in the course of the trilogue. There is no need to expect long negotiations. Except for the issue of synthetic fuels, both sides are largely in agreement. The ban on internal combustion vehicles could therefore be codified at one or two trilogue meetings in the fall – it remains to be seen whether and with what wording e-fuels will be included.
However, the wording used by the environment ministers is also sobering from the point of view of fans of synthetic fuels. It states that the regulation for e-fuels is to take place “outside the system of CO2 fleet regulation“. This would dash the hopes of some automakers that, from 2035, cars with internal combustion engines that run on e-fuels would be treated in exactly the same way as EVs.
Environment Minister Steffi Lemke (Greens) is known to go even one step further. She understands the passage, which is similar to the one in the traffic light government’s coalition agreement, to mean that only special vehicles such as emergency vehicles of the police and fire department may be operated with e-fuels.
Much of the conventional wisdom about Europe’s current natural-gas crisis – triggered by reduced deliveries from Russia – rests on two assumptions: that the German economy depends on cheap Russian gas, and that this bet has gone spectacularly wrong. But while German industry is strong, and the country imports a lot of natural gas from Russia, a closer inspection of the numbers and economics involved does not support the prevailing narrative.
For starters, natural gas does not play a large enough role to drive an industrial economy. In 2019, gas imports via pipeline cost Germany $30 billion, representing only 0.75 percent of its GDP, and the overall value of the country’s gas consumption was below 2 percent of GDP. These modest ratios are similar across industrialized economies and suggest that cheap gas imports are highly unlikely to be a major growth factor. Moreover, even though gas consumption has stagnated in Germany and most of Western Europe over the past two decades, the economy grew, albeit slowly.
The argument that cheap Russian gas might have favored Germany more than other countries also is not backed up by the numbers. In 2019, Germany accounted for only about 2.3 percent of global natural-gas consumption, but 4.5 percent of world GDP. Germany’s gas intensity per unit of GDP is thus about one-half of the global average, much lower than that of the United States and many other industrialized countries, including Japan and South Korea.
European economies tend to be thriftier in their energy use than the rest of the world. But even within Europe, Germany performs well, with lower gas consumption per unit of GDP than other large European economies, such as Italy and Spain. This is surprising since these two Mediterranean countries have much less need for heating in winter (and air conditioning in summer requires an order of magnitude less power than heating). Only France, with its large nuclear-power sector, is less dependent on gas.
A similar picture emerges from related metrics, such as the value of energy imports as a percentage of GDP, or gas usage for industrial purposes as a share of industrial value added. All these indicators show that the German economy uses energy less intensively than most others.
The idea that German industry gained an advantage from access to cheap Russian gas ignores the reality that there is a European gas market with, up to now, only small differences in wholesale prices across countries. One could of course argue that Russia sold its energy cheaply to Germany to make the country dependent. But the data challenge the common perception that Germany receives cheap gas.
Over the past decade, German industry has paid about 10 percent more for natural gas than its competitors in other major European economies. Supplies from North Sea fields have enabled British industrial firms to pay even less than their continental peers, but this does not appear to have helped them much.
The implication is that Russia obtained a non-economic benefit (German dependence on its gas supplies) for almost no cost. The inverse of this is that Germany experienced a loss of energy independence without gaining a noticeable economic advantage.
The one large economy that is both energy-intensive and has cheap natural gas is the United States. The average US citizen uses more than twice as much natural gas as a European – 25 megawatt-hours per year for the US, compared to about 10 MWh for European countries. Moreover, US natural-gas prices have been somewhat lower than German or EU prices for most of the past two decades, and are now only a fraction of the European price, as European prices have increased by a factor of five, whereas US prices have changed little. Despite this cost advantage, however, the manufacturing industry of the US – and that of the United Kingdom – has not grown particularly strongly.
Adjusting to a world without Russian gas is of course a major problem for Europe. Yet, although Germany seems more vulnerable because it used to receive a large share of its gas from Russia, this can change quickly. Germany is building new regasification capacity in record time to allow the country to import the quantities of liquefied natural gas needed to fill the gap between lower Russian supplies and domestic demand, which is already falling because of high prices.
Once this import capacity has been constructed, Germany will be in the same situation as its European neighbors, which also have to bid for LNG. Prices are likely to stay high for some time. But with an energy intensity below the EU average, Germany should be able to bear the burden slightly better than Italy, Spain, and some Eastern European countries. France, of course, will be much less affected, at least if its nuclear reactors can resume full production.
We should also not forget the global picture. Bottling up a large percentage of Russian gas (which is what will happen if Europe no longer buys from Russia) increases the global gas price, which affects Asian countries as well, because they compete with Europe on LNG. South Korea and Japan have a higher energy intensity than Europe, and even China imports large quantities of LNG, at a price similar to what European countries pay.
Expensive energy, particularly natural gas, poses a difficult economic and political challenge for all energy-importing industrialized countries. Only the US and some other smaller energy producers such as Norway, Canada, and Australia benefit from this situation. But the data suggest that Germany is better placed to weather this crisis than most of its main competitors.
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
As of today, EU countries are no longer allowed to import coal from Russia. The coal embargo, part of the EU’s fifth sanctions package against Russia, is taking effect and is supposed to further weaken the Russian economy financially. Read how many billions are at stake in the News.
The threat of Russia cutting or suspending gas supplies to Europe remains real. In today’s Opinion, Daniel Gros of the Centre for European Policy Studies explains why the German economy could weather cuts better than many other European countries. Germany imports a lot of natural gas but is relatively frugal.
The EU Parliament has long since decided to phase out internal combustion engines by 2035, and the environment ministers have also agreed to the EU Commission’s proposal but with a caveat: synthetic or e-fuels. This would allow cars with internal combustion engines to be registered beyond 2035 if the e-fuels are produced in a climate-neutral way. The environment ministers are not alone with their wish for this loophole to be included; at the German federal level, Chancellor Olaf Scholz also supports it – after consulting Commission President Ursula von der Leyen. Markus Grabitz dives into the details.
I wish you an interesting read.
Is there an agreement between EU Commission President Ursula von der Leyen and German Chancellor Olaf Scholz on the use of synthetic fuels in cars? At least, that is what is being reported in Berlin. According to the report, Scholz has lobbied his former cabinet colleague and current Commission head for the Commission to make a regulatory proposal for so-called e-fuels in private transport in the near future.
The background to this is the agreement reached by the environment ministers of the 27 EU countries on the EU Commission’s proposal to stop allowing new vehicles with internal combustion engines from 2035. The Environment Council had made the general direction on June 28 and gave the green light to the end for the internal combustion engine on the part of the chamber of countries.
The EU Parliament had previously passed the same resolution by a large majority. However, under pressure from Italy and several Eastern European countries, the environment ministers also opened a window for synthetic fuels. The following wording was included: “The Commission will make a proposal on how vehicles that run on CO2-free fuels can also be registered after 2035.” The wording still contains the addition that this will be done “outside the systematics of CO2 fleet legislation”.
Thus, at least the body of member states has held out the prospect of synthetic fuels being used in cars and vans beyond 2035. What is clear, however, is that the EU Parliament, as co-legislator, had rejected e-fuels. It, therefore, remains to be seen whether the member states can wrest approval from the Parliament’s negotiator in the trilogue, which will be negotiated under the Czech Council presidency from the fall.
The FDP, which had campaigned massively for the use of synthetic fuels in the Bundestag election campaign, nevertheless regarded these formulations as a victory on its own behalf. They said it was clear that cars with internal combustion engines could still be registered after 2035 if they ran on synthetic fuels. Synthetic fuels are produced using hydrogen as an energy carrier and are virtually climate-neutral if the hydrogen is produced using solar or wind energy. Synthetic fuels are processed in a refinery to produce gasoline, diesel, or even aviation fuel and can already be used by all internal combustion engines.
What weight does the wording of the environment ministers have? The fact is that it is merely a so-called recital. Recitals in a legal text are not “legally binding”. The Vice President of the EU Commission, Frans Timmermans, is fully committed to the battery-electric solution in the transport transition and wants to avoid the use of e-fuels in cars at all costs. Timmermans has already indicated that, for him, the 2035 ban on internal combustion engines is no longer being debated. He also has no plans to make a proposal on synthetic fuels, he announced after the Environment Council.
This is where Olaf Scholz comes into play. According to reports in Berlin, the issue is close to the Chancellor’s heart, and he has lobbied the Commission President to ensure that the Commission’s initiative is implemented promptly. Von der Leyen is said to have signaled her approval.
One thing is clear: For the proponents of e-fuels, time is running out if the proposal is to be considered by the co-legislators Parliament and Council in the course of the trilogue. There is no need to expect long negotiations. Except for the issue of synthetic fuels, both sides are largely in agreement. The ban on internal combustion vehicles could therefore be codified at one or two trilogue meetings in the fall – it remains to be seen whether and with what wording e-fuels will be included.
However, the wording used by the environment ministers is also sobering from the point of view of fans of synthetic fuels. It states that the regulation for e-fuels is to take place “outside the system of CO2 fleet regulation“. This would dash the hopes of some automakers that, from 2035, cars with internal combustion engines that run on e-fuels would be treated in exactly the same way as EVs.
Environment Minister Steffi Lemke (Greens) is known to go even one step further. She understands the passage, which is similar to the one in the traffic light government’s coalition agreement, to mean that only special vehicles such as emergency vehicles of the police and fire department may be operated with e-fuels.
Much of the conventional wisdom about Europe’s current natural-gas crisis – triggered by reduced deliveries from Russia – rests on two assumptions: that the German economy depends on cheap Russian gas, and that this bet has gone spectacularly wrong. But while German industry is strong, and the country imports a lot of natural gas from Russia, a closer inspection of the numbers and economics involved does not support the prevailing narrative.
For starters, natural gas does not play a large enough role to drive an industrial economy. In 2019, gas imports via pipeline cost Germany $30 billion, representing only 0.75 percent of its GDP, and the overall value of the country’s gas consumption was below 2 percent of GDP. These modest ratios are similar across industrialized economies and suggest that cheap gas imports are highly unlikely to be a major growth factor. Moreover, even though gas consumption has stagnated in Germany and most of Western Europe over the past two decades, the economy grew, albeit slowly.
The argument that cheap Russian gas might have favored Germany more than other countries also is not backed up by the numbers. In 2019, Germany accounted for only about 2.3 percent of global natural-gas consumption, but 4.5 percent of world GDP. Germany’s gas intensity per unit of GDP is thus about one-half of the global average, much lower than that of the United States and many other industrialized countries, including Japan and South Korea.
European economies tend to be thriftier in their energy use than the rest of the world. But even within Europe, Germany performs well, with lower gas consumption per unit of GDP than other large European economies, such as Italy and Spain. This is surprising since these two Mediterranean countries have much less need for heating in winter (and air conditioning in summer requires an order of magnitude less power than heating). Only France, with its large nuclear-power sector, is less dependent on gas.
A similar picture emerges from related metrics, such as the value of energy imports as a percentage of GDP, or gas usage for industrial purposes as a share of industrial value added. All these indicators show that the German economy uses energy less intensively than most others.
The idea that German industry gained an advantage from access to cheap Russian gas ignores the reality that there is a European gas market with, up to now, only small differences in wholesale prices across countries. One could of course argue that Russia sold its energy cheaply to Germany to make the country dependent. But the data challenge the common perception that Germany receives cheap gas.
Over the past decade, German industry has paid about 10 percent more for natural gas than its competitors in other major European economies. Supplies from North Sea fields have enabled British industrial firms to pay even less than their continental peers, but this does not appear to have helped them much.
The implication is that Russia obtained a non-economic benefit (German dependence on its gas supplies) for almost no cost. The inverse of this is that Germany experienced a loss of energy independence without gaining a noticeable economic advantage.
The one large economy that is both energy-intensive and has cheap natural gas is the United States. The average US citizen uses more than twice as much natural gas as a European – 25 megawatt-hours per year for the US, compared to about 10 MWh for European countries. Moreover, US natural-gas prices have been somewhat lower than German or EU prices for most of the past two decades, and are now only a fraction of the European price, as European prices have increased by a factor of five, whereas US prices have changed little. Despite this cost advantage, however, the manufacturing industry of the US – and that of the United Kingdom – has not grown particularly strongly.
Adjusting to a world without Russian gas is of course a major problem for Europe. Yet, although Germany seems more vulnerable because it used to receive a large share of its gas from Russia, this can change quickly. Germany is building new regasification capacity in record time to allow the country to import the quantities of liquefied natural gas needed to fill the gap between lower Russian supplies and domestic demand, which is already falling because of high prices.
Once this import capacity has been constructed, Germany will be in the same situation as its European neighbors, which also have to bid for LNG. Prices are likely to stay high for some time. But with an energy intensity below the EU average, Germany should be able to bear the burden slightly better than Italy, Spain, and some Eastern European countries. France, of course, will be much less affected, at least if its nuclear reactors can resume full production.
We should also not forget the global picture. Bottling up a large percentage of Russian gas (which is what will happen if Europe no longer buys from Russia) increases the global gas price, which affects Asian countries as well, because they compete with Europe on LNG. South Korea and Japan have a higher energy intensity than Europe, and even China imports large quantities of LNG, at a price similar to what European countries pay.
Expensive energy, particularly natural gas, poses a difficult economic and political challenge for all energy-importing industrialized countries. Only the US and some other smaller energy producers such as Norway, Canada, and Australia benefit from this situation. But the data suggest that Germany is better placed to weather this crisis than most of its main competitors.
Copyright: Project Syndicate, 2022.
www.project-syndicate.org
