Energy, time for choices?

In April 2022, US Treasury Secretary Janet Yellen advocated the pursuit of friendshoring, i.e. trading relationships between trusted partners and locating investment within this perimeter.

Favouring the ‘friendly relocation’ of supply chains to a large number of trusted countries, so that we can continue to expand market access in complete security, will reduce the risks for our economy, as well as for our trusted trading partners.

Yellen, Way Forward for the Global Economy, Atlantic Council, April 13, 2022

The war in Ukraine put this injunction into practice, with Europeans having to reorganise their energy supplies as a matter of urgency and restore the security of supply with “friends” (the United States, Norway, etc.) that had been damaged by Russian aggression. The economic consequences of the conflict have reached far beyond the borders of the EU, disrupting both global oil and gas routes (embargoes, restrictions on tanker insurance) and the level and mechanisms of price formation (price ceilings, forced rebates, etc.). As a result, the energy world is tending to be split between a “Russian market” (countries that agree to trade with Russia) and a “non-Russian market” (the others), with bridges (such as India, which refines Russian crude that is partly redirected to Europe).

This crisis could herald an era of post-globalisation. It also highlights the limits of friendshoring: while the United States has been the main supplier of liquefied natural gas to Europe (in partial compensation for the fall in Russian supplies via trans-European pipelines), the US inflation reduction plan (Inflation Reduction Act) is based on massive subsidies for low-carbon investments, which is a challenge for European industry.

Above all, these fractures increase the indeterminacy of the fight against climate change. On the one hand, the Paris Agreement is fundamentally based on cooperation mechanisms that are out of step with these times of war; but, on the other, the energy crisis has revealed the extent of the risks of dependence on fossil fuels (while driving up their prices), which can only encourage us to speed up our efforts to decarbonise. As the International Energy Agency has already noted:

“The momentum of investment in clean energy is the result of a powerful alignment of costs, climate and energy security objectives and industrial strategies […] for every dollar spent on fossil fuels, $1.7 is now being spent on clean energy. Five years ago, the ratio was 1:1”

International Energy Agency, World Energy Investment, May 2 2023

This positive investment dynamic is not evenly distributed between countries or sectors: more than 90% of the increase since 2021 is concentrated in advanced economies and China. Weak institutional frameworks, financially constrained public services and high capital costs are holding back investment in many other countries. In addition, the prices of certain key clean energy technologies have risen over the last two years, due to the increase in the prices of critical minerals, semi-conductors and materials such as steel and cement.

More than ever, Europe is positioned as the point of balance between the Atlantic and Asian markets for energy and materials critical to the transition. If the winter of 2022 passed without any major fossil fuel supply disruptions or even power cuts, it was thanks to a complex and hitherto unseen patchwork of political decisions, market dynamics, meteorological phenomena and voluntary efforts at sobriety. With its sights firmly set on the future, the Old Continent is moving, not without difficulty, towards a new path where efforts to reduce demand for electricity, oil and gas will not have to stop if we are to move beyond the energy crisis and achieve carbon neutrality (Creti A., Geoffron P., Vers des échanges d’énergie « entre amis », L’économie Mondiale 2024, CEPII, Repères, La Découverte).