Fossil Fuels

The Soft Power Failure of the EU: Russia walks off — Michael LaBelle (Ep 51)

Russia walks off – Michael LaBelle

This week Michael LaBelle provides a rough description of why the EU has lost its soft power.

Rising gas prices, the military aggression of Russia, and rule of law breaches in former Communist states are heralding a new era for the EU. This ‘post-acquis’ era is marked by rising nationalism and populism which undermine the foundation of the EU’s soft power.

The question that needs to be answered is, ‘Why did the EU lose its soft power?’ This question cannot be answered without including the hard power of NATO.

The Post-Cold War environment saw NATO’s eastern expansion, which is now questioned by the hard military might of Russia. The expansion of democracy in former communist countries, once represented by EU membership, represents a new socio-political system expressing soft power. At the same time, the hard power of NATO also went East. Jointly, these institutions now are perceived to threaten the borders and sovereignty of Russia.

The EU has been slow, and even incapable of acting against its own member states who have discounted the democratic norms which are the foundation of the European Union. The EU’s soft power derives from a descriptive cultural experience of individual liberty and respect for human rights. The Cold War-era institutions of the Helsinki Commission, European Court of Human Rights, and others symbolize a common pursuit of both the Soviet and Western countries to establish common rights within Europe. Now, these institutions are sidelined as nationalists and populists reclaim sovereignty given over to these Cold War institutions, including the EU.

The EU’s Single Energy Market (SEM) was built and functioned as a place for companies and governments to ‘come and play’ (as Goldthau and Sitter state). Money could be made by neighboring countries selling gas and electricity by the rules within the SEM. However, over time, as competition and neoliberal rules took over from national governments’ long-term agreements with Russia, participation in the EU’s SEM was not a favorable place to play.

Gas is now near-enough, thanks to LNG and new pipelines, a global commodity. Russian gas is breaking the Soviet gas bridge and finding alternative buyers. For most companies and countries wanting to play in the SEM, there are other places to sell their gas. During the Cold War, gas was more than a commodity, it was a tool to build relations between the Soviet Union and Western (and even Eastern) countries. And to transfer money and technology. This was soft power at play. The Western European countries were attractive for their cash, knowledge, and business relations that could be developed over time (as described by Thane Gustafson in his book, The Bridge). Thus, gas, while a commodity was also a relational tool creating trust and commerce between two different political-economic systems.

The downgrading of gas to a mere commodity overseen by market rules and regulations favoring consumers, means producers are no longer incentivized to participate in a market that has strings attached. The SEM is described by scholars Goldthau and Sitter, as a soft power tool with a hard edge. Meaning the market is attractive to foreign and domestic entities who will play in the market, but there are hard rules and regulations which dictate how participation is done. For Russia in 2021 and 2022, participation is defined as satisfying contractual commitments, but not sending higher levels of ‘free’ gas to participate in the market.

The EU’s soft power is also undermined from within by member states. The growth of populism and nationalism delivers scathing blows against the legitimacy of the European project. NATO was a product of the Cold War – expressing hard power. But the EU is a product produced from World War Two seeking stability and being founded on a common platform of not only economic union, but also political and social union to prevent war between European countries. Therefore, the EU cannot be defined only through rules, regulations, and legislation, but through social and political norms that perceive democracy and individual liberty as foundational to society.

Breaches of the rule of law perceived to be happening in Hungary and Poland, and staggered efforts by the EU to reclaim a semblance of democratic norms in these countries, demonstrates an overly prescriptive governance system unable to have soft social and political norms genuinely accepted by these governments. For these two countries and others, negating the acquis that guided their EU membership by conforming legislation and social systems to an EU norm, meant sacrificing Communist practices of non-market economies and social control. Clearly, these historical practices have not disappeared.

In a post-acquis era, returning to Communist top-down political management appears to be the best way to deliver low-cost energy and societal control. There’s little space for fair elections or expression of individual rights. While the hard power of Russia may not appeal to the Polish government, the nationalistic and populistic tendencies are a return to a form of governance that the parties in power in both Hungary, Poland, and Russia appreciate. And, depending on how you count, over fifty percent of voters support this form. Legitimacy from the ground-up or from the top-down? For nationalists, there is no question. Why should the state be second to a multilateral governance organization preaching liberty with high energy prices? The soft power benefits that attract all three of these countries to the EU, whether the SEM or development funds, is not enough for them to give up historical practices of a nationalistic sovereign state.

Michael LaBelle

The soft power of the EU, to be attractive while also persuading partners to be democratic and neoliberal in commerce is lost. The built-up EU institutions and mechanisms, seen in the SEM or the European Emission Trading System (ETS) provide stringent rules and regulations, not all member states are willing to abide by. Add to that democratic norms, such as respect for press freedom, then membership to the EU has a high cost.

Unfortunately, for the EU, holding soft power, means you can’t kick out those that do not play by your rules. But they can choose to leave. Russia (and the UK) decided they are better off not playing by the EU’s rules. For Hungary and Poland, they decided it’s better to stay in but pay no attention to the rules. For the EU, to build back its soft power, some hard power could be useful.

January 13, 2022

Transcript of The Soft Power Failure of the EU

Building the EU’s Gas Transition with Russia — Thierry Bros (Ep 49)

Thierry Bros – Episode 49

This week we speak with Thierry Bros, he’s a professor at Sciences Po in Paris. In the introduction I use the term  ’eminent expert on gas’ and after listening to this interview you will be using this term too.

On the podcast, I try to keep introductions short but pay attention to his experience on the EU- Russian gas roundtable or his lead with the liberalization of the French gas market. I’m really honored for him to come onto the podcast to discuss his latest study done with Jean-Arnold Vinois, published by the Jacque Delors Energy Centre, titled, High Energy Prices, Russia Fights Back? In my opinion, this is one of the best reports on the current crisis in the gas market. It is direct, clear, and full of advice and information.

Thierry provides a succinct path for how the European Commission – and national governments need to navigate the current crisis and overall energy transition. He is very clear in stating, we can’t jump from 2020 to 2050. In his view, the Commission forgot this.

In this episode, we balance his perspective between the market deciding on the technologies to get us to net-zero, and governments subsidizing our way through a green transition. That is, making energy affordable to households but smoothing the volatility that is caused by phasing out fossil fuels- and the natural rhythm of commodity markets.

There is €30 billion coming from the EU’s Emissions Trading System (ETS), this money should be used to assist households with the transition and put into R&D for new technologies – not given to large corporations to fund incremental improvements.

Towards, the end we get to Russia- EU gas relations. Here Thierry’s perspective is clear: The EU Commission needs to step up and engage with Russia over Nord Stream 2 and the medium-term role of gas in the EU. He cites the disparaging treatment the EU has given towards Russia on the role of gas in the green transition. As EU suppliers dry up – like the Dutch and Norwegian fields, Russian gas is increasing its share in the EU. A long-term strategy needs to be developed to ensure sufficient investment occurs to weather the transition phase. For Thierry, he believes in the long-term viability of Carbon Capture and Sequestration (CCS).

But I would say, regardless of your view on CCS, gas is with us for the long-term, the current under investments, and high prices, like what I discussed with Adam Cyzewski, the Chief Economist of PKN Orlean, in episode 44, it is clear, jumping to a 2050 energy mix, without a deliberate strategy over infrastructure and without ensuring stable relations with gas suppliers, is not viable. Rather, a phased transition is needed that involves specific milestones and partnerships.

Thierry Bros

My suggestion is to listen to this episode and read the gas report, you’ll learn a lot about the causes and solutions to the current gas prices.

Finally, there is an incredible amount of information in these podcast episodes – just like this one – I do make the transcripts available on the My Energy 2050 website. Just as a note, I’ll be using these interviews to inform my own research, so if you are also a researcher, I suggest you check out the transcript – and even cite the episode in your publications. That actually helps my own citation scores and makes doing the podcast more fun than writing another journal article.

Finally, for comments, I suggest to jump on the LinkedIn or Twitter posts of the episodes and leave comments there. Social media is a great way to share knowledge and grow the quantity of high-quality information about how to make the energy transition a reality.

Transcript of the episode

Seeking Stability & Circularity for European Metals — Chris Heron and Cillian O’Donoghue (48)

Building the Circular Economy – Eurometaux

The complexity of manufacturing from a global supply chain has never been more apparent than now. With supply shortages caused by the impact of Covid-19 and efforts to combat climate change, we are entering a new period, as I have stated in the past about Carbon Storms, where a confluence of events disrupt or place pressure on once stable markets.

At the end of 2021, there are shortages even with the common material of magnesium, with European production of cars, planes, and other lightweight aluminum alloys ceasing. The global shortage of computer chips sent the message of how integrated – and tight – global supply chains are. Now as Europe continues to produce everyday products like cars, but also higher-tech equipment necessary for the energy transition, there is a serious supply problem for European industry.

For this episode, we are joined by Chris Heron and Cillian O’Donoghue. Cillian, As you’ll hear, the interview with these representatives of the European Metals Association (Eurometaux)  is perfect timing to understand both the current shortages and what is needed to improve the situation for European manufacturers.

I think you’ll find many parts of this episode surprising. And certainly informative. Previously, I just thought Europe needed to be producing everything at home to ensure the security of supplies for these materials, but as you’ll also find out, bringing it back home, may not be the answer.

Europe’s high energy prices and other key competitive factors, making the rebuilding industry a challenge. Rather, diversification of sourcing may be a more competitive and secure way forward.

Also, bringing back industry to Europe – requires lower priced energy. The factory has to be competitive in Europe. And now with the big effort to decarbonize power and electrify everything, rebuilding the European smelting and resource sector may be beyond the rationale.

In terms of energy, as Cillian points out, smelters and factories can use wind and solar, but these are intermittent power sources, so it’s necessary to develop large scale storage options – Hydro is a great example, but for other sources, a steady supply is important to ensure continual operation. This is not to say it can’t be done, but the challenges are there.

In regards to building the circular economy, we put our hands down into the recycling box to find out that recycling can happen in the sector. But as Chris points out, the materials going into batteries or other new technologies are not at a sufficient level within the economy to create a recycling loop. Therefore, we need to rely on raw materials to build up a base for recycling.

Eurometaux – Circularity in European metals

We then get to the sources of raw materials. How can the industry source the materials from mines or locations that do have high environmental and social standards?  As I’ve discussed in previous episodes, Maty .. And Martin..  Verifying the supply chain becomes very important.

Towards, the end we get to the carbon border adjustment mechanism that is being proposed by the EU Commission, to ensure that materials brought into the EU are made with sustainable energy. However, according to Chris and Cillian,  this turns out to be deficient in its application. Listen to find out why.

Related episodes:

The Value of Climate Accounting — Martin Wainstein (Ep. 35)

The Equitable Battery Alliance: Innovating fair supply chains – Mathy Stanislaus

The Clean Regulatory Transition Project — Jan Rosenow (47)

Jan Rosenow – Regulatory Transition Project

This week we speak with Jan Rosenow, the Director of European Programmes at the Regulatory Assistance Project. The word, ‘project’ as Jan tells us, was meant to be a project to assistant regulators to build better utility regulation. The project operates in China, Europe, India, and the United States.

From this episode, you’ll learn about the importance of regulation in the energy transition. Markets are not free, but depend on good (and bad) regulation to create market conditions that deliver outcomes that society wants. Of course, there is a heavy dose of politics in this mix, but the main thrust is to protect the consumer.

As Jan tells us, regulation is not just regulation implemented by energy regulators, but also comprises policies that shape the markets.

From a personal point of view, I love regulation. This will sound very odd, but one of the joys of living in the EU is we have so much regulation to study and understand the impact of both a multilateral institution, like the EU, but also the actions of governments and how they implement regulation is such diverse actions.

Jan Rosenow

I was really excited when Jan agreed to come onto the podcast to discuss what the Regulatory Assistance Project does, and to focus on regulation’s role in the energy transition. This episode delivers with both a general discussion on regulation in the first half and by the second half, we work our way through the role of regulation in the EU and the new Fit for 55 and Green Deal directives that are coming out.

However, I want to emphasize the eloquent way that Jan answers all my questions on regulation. Jan has a rare and true skill to be able to express the role of regulation plays in both abstract terms but also through examples. And I think what I’m saying here, doesn’t do justice to how he explains the importance and differences regulation plays in the energy transition. 

The energy transition requires forward-leaning regulations that both push and pull new technologies in the marketplace. In this episode, you’ll learn both how this is done and why it is done.

Transcript of our discussion

The Virtual Power of a Polish Energy Entrepreneur — Bartosz Kwiatowski (Ep 45)

Episode 45: Bartosz Kwiatowski

This week we speak with Bartosz Kwiatowski the director of the Polish Liquid Gas Association. I’ve known Bartok for over a decade and he is always a well of knowledge on the Polish energy scene and broader developments in Europe. So why is today’s episode important to listen? You’ll gain a greater understanding of the role that nuclear power and hydrogen could play in the Polish energy mix. In our discussion, we provide both a historical account of why Poland is reliant on coal and how it can transition out from coal. As Bartok points out, the dramatic increase in solar PV use in the country, or the development of energy clusters in towns contrasts the national push for coal.

Bartok has also been active in the start-up scene, trying to get a virtual power plant operating with a range of businesses. Bartok recounts the difficulty of having a small energy company – it saves energy, but it does not attract money to expand, because of its ability to save energy. Listen in, and you’ll get the account of why attracting VC funding is hard at a small scale. Towards the end, we do cover the role of liquid gas fuels – this is important when we consider how we shift people cooking and heating to using gas produced from biofuels.

In this week’s episode, we take on a range of issues providing a broader perspective of developments in Poland, but also within the EU. You’ll learn of the complexities of decarbonizing the energy system in both large and small scale projects.

Beyond Oil? Carbon neutrality by 2050 — Adam Czyzewski (Ep 44)

Adam Czyzewski – Episode 44

This week we speak with Adam Czyzewski, the chief economist at PKN Orlen. I’ll describe PKN Orlen as a diversifying oil and gas firm.

I got the opportunity to sit down with Adam while I was in Warsaw and I’m extremely grateful for his time and his willingness to share his thoughts on the energy transition. It is possible that some listeners may object to my conversational style sit-down with a representative of the oil and gas world. I remember a conference I attended in 2019 when the Chief Economist for Equinor got not only a frosty reception but a hostile reception from the academic and policy audience at a conference on ‘Beyond Oil’.

My approach to understanding and assisting in the energy transition is to listen to a range of opinions. In this interview, you’ll learn that Adam – before he joined PKN Orlen 12 years ago, was an outsider himself. He shares his perspective and questioning of the sustainability around not just fossil fuels but global consumption of energy and materials. Even, as he points out – that plastic turned out to be too cheap and good for a consumer society. Nonetheless, the lightweight and durable properties of plastic make it useful for the energy transition.

Adam provides a pivotal acknowledgment and voice that says, yes, our present consumption patterns are not environmentally sustainable – but he also outlines how an oil and gas firm CAN make the transition to be carbon neutral by 2050. This seems unbelievable from an oil and gas firm. At least, I was highly skeptical before speaking to him. But as you’ll hear, more than what I thought, could actually be achievable. Particularly, when you consider how the firm is diversifying into wind farms and investing in developing new technologies.

Adam Czyzewski – Beyond oil

Depending on where you live and your background, you may be dismissive of what can we learn from a Polish oil and gas firm. As dedicated as the Polish government appears to be towards coal, it is important to understand the world, technology and firms are changing regardless of what is in the headlines. It may be a question of how fast we make the transition, or can we really believe fossil fuel firms will get rid of their fossil fuels? These are points for arguments. But at least from this interview, you’ll gain an understanding of the market forces at work that keep fossil fuels as petrochemical feedstocks in the near – if not distant – future.

One of the reasons I wanted to start a podcast was to share some of the interviews I have with experts while doing research. I’ve interviewed Adam in the past and I always found him very knowledgeable and holding a broad view of energy markets. In this episode, you’ll get more than an insight into the workings of oil and gas markets. You’ll get a thoughtful discussion on where companies are heading as they lower their carbon outputs and invest more into lower or zero-carbon technologies.

Transcript of episode

Prepare for Impact: The EU’s Energy Transition — Miroslav Lopour (Ep 42)

Episode 42 – Miroslav Lopour

This week we speak with Miroslav Lopour, he is a Senior Manager of the Energy and Resources team at Deloitte Czech Republic.

We have a wide-ranging discussion about how the Czech Republic is preparing for the energy transition.  What you’ll learn from our conversation is a unique perspective on the EU’s Eastern Member States. I found Miroslav has the ability to express in a precise manner both the social and political resistance and reluctance to participate in an energy transition. As you’ll hear in our discussion about the coming electric car revolution, Miroslav articulates why there is reluctance in the country, to move away from the internal combustion engine, and even coal.

He discusses an inherent conservatism in former communist countries which makes politicians and society reluctant to fully participate in a clean energy transition. I think our conversation provides an in-depth understanding of this reluctance to change, not just in the Czech Republic but in the broader region of Eastern Europe.

Miroslav Lopour – Deloitte

If I can think of one reason you should listen to our discussion today, it is to understand why certain countries are slow on the uptake and deployment of policies and technologies that deliver a clean energy. There is justifications for why countries move slow. Understanding the reasons can assist in developing policies and help us all transition to a cleaner future – not just a few countries.

As I mentioned we discuss a range of topics, but threaded through our conversation is the difficulty to change industry and technologies. Regardless of the reluctance, as Miroslav points out, the money from the EU is here – and ready to fund the transition. Therefore the Czech Republic is about to ramp up their activities and join the transition.

I think our conversation is an important milestone. We need to revisit the expectations expressed in this interview in a few years. Let’s see if what the EU is promising in retooling industry and assisting people and regions, to move away from coal, does have a positive impact.

The Carbon Storm of 2021: Energy shortages and high prices — Michael LaBelle (Ep. 39)

We can speak of the ‘Carbon Storm of 2021’ which reflects the new reality of Climate Capitalism, which Michael spoke about in episode 31. We are now paying the price of the energy transition, and how consumers, governments and industry react and work together to make this transition will also determine the price we pay in the short and the long-term.

Extracting value from a coal phase-out — Gireesh Shrimali (Ep. 38)

This week we speak with Gireesh Shrimali, Precourt Scholar at the Sustainable Finance Initiative at Stanford University. He is also an adjunct professor at Johns Hopkins University and involved in the Climate Investment Funds.

One of the key takeaways from our conversation is the idea of Value at Risk and the inter-relationship with transition risk. Gireesh’s examination of risk essential for understanding how we accelerate an energy transition. We begin to discuss this halfway through, and it is an essential concept for managers to understand when assess the value of their asset portfolio. It is also important to understand how established technologies, like solar and wind, are already undermining coal and gas.

We can view activists investors, like those from Engine Number One, which seated new members onto Exxon’s board, as radical energy pioneers, but Gireesh and his analysis underlines the importance of risk assessment as the energy transition speeds up. You’ll find our discussion worthwhile for understanding risk and how coal and gas are becoming stranded assets with companies unable to extract profits – thereby threatening the survivability of the companies themselves.

Links

World Bank. “Coal-Plant-Repurposing-for-Ageing-Coal-Fleets-in-Developing-Countries-Technical-Report.Pdf,” 2021. https://documents1.worldbank.org/curated/en/144181629878602689/pdf/Coal-Plant-Repurposing-for-Ageing-Coal-Fleets-in-Developing-Countries-Technical-Report.pdf.

Calculating climate financial risk: How to combine transition and physical risks? | by Gireesh Shrimali | Medium

Deploying batteries at scale in power sector: A case for battery targets complemented with DISCOM-controlled dispatch – The Economic Times (indiatimes.com)

The Oracle of Renewables: IRENA builds a 2030 green path in Central and South-East Europe

How do we get to a low fossil-fuel system by 2030 in Central and South-East Europe? The latest IRENA report outlines a new scenario – for lower cost fossil fuels are displaced with renewables. This is a summary of the podcast interview with members of the IRENA, CESEC report team.

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