BNPP AM'S MONTHLY NEWSLETTER - Energy crisis

November 2, 2022

The Impact of the Energy Crisis

The energy crisis was already wreaking havoc with energy transition plans.  Energy supply shocks following the outbreak of war in Ukraine have resulted in governments hastily addressing their energy security strategies.  The price of gas has increased sharply, improving the economics of more carbon-intensive coal.  These events have clear implications for greenhouse gas emissions and the climate.

  • Recent analysis for the Financial Times found that European governments are expected to spend EUR 50 billion this winter on fossil fuel infrastructure and supplies, more than four times the EUR 12 billion earmarked in RePowerEU.(1)
     
  • Higher demand for coal combined with logistical problems have contributed to the price of a tonne of hard coal reaching EUR 417 (October 2022), compared to EUR 60 at the start of 2021.  Germany, the Netherlands, the Czech Republic and Greece have all increased their coal production or mining activities in response.
     
  • Germany has implemented energy efficiency measures and has now exceeded the EU’s recommended gas storage target of 80%.  Its average import prices of natural gas, oil and coal have risen sharply, up 132% year on year in July.
     
  • The crisis has increased the carbon price in the EU ETS(2) as gas contracts have surged and coal generators bought allowances for hedging purposes.  A high price may well be good to limit emissions. However, the European Commission has promised EUR 29 billion in aid to ETS participants to partially compensate energy-intensive companies.

Alexander Bernhardt, Global Head of Sustainability Research, BNPP AM

“In the context of the energy crisis it is important to understand that funding clean energy capacity does not just help climate targets, but is now viewed as a key strategy for improving energy security.  Climate change, energy security and inflation are all interlinked.  Moving away from fossil fuels towards a clean energy system will help ameliorate all three of these problems.  Investors will have a key role to play in redoubling fiscal support and helping to break the fossil fuel-insecurity-inflation cycle.”

Footnotes : 

(1)REPowerEU is the European Commission’s plan to make Europe independent from Russian fossil fuels well before 2030, in light of Russia's invasion of Ukraine.

(2)ETS = Emissions Trading System

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