Addressing the energy crisis while delivering on EU’s climate objectives: recommendations to policy makers

The reduction of Russian energy supplies to the EU in the aftermath of its illegal invasion of Ukraine in February 2022 has led to a historic energy crisis in the EU. Energy prices in the EU have risen several-fold to a peak in summer 2022, contributing to an escalation of the cost-of-living and endangering the economic viability of European businesses.

National governments, local authorities and the EU have responded swiftly with a wide range of policies to cushion energy costs and ensure further supply. Since their peak in summer 2022, prices have decreased again, due to a combination of a warm winter, plentiful supply of liquefied natural gas, reduced industrial output and energy savings. However, prices are still significantly above pre-crisis levels, and with the prospect of reduced Russian energy supplies for the foreseeable future, the crisis is far from over.
With the price peaks and winter heating season almost behind us, the time is now to shift from crisis-management to a more structural approach to tackle the crisis. The energy crisis – and the policy responses to mitigate its impacts – can have a significant impact on the EU’s transition towards climate neutrality. On one hand, it provides a strong rationale to accelerate energy savings and the deployment of domestic, clean energy sources to reduce our dependence on fossil fuel imports. On the other hand, there is also a risk that efforts to secure sufficient energy supply or soften energy prices through subsidies will delay the transition or even lead to long-term emission lock-ins.

The European Scientific Advisory Board on Climate Change evaluated how different types of policy responses to the energy crisis can affect the transition towards climate neutrality, and prepared several recommendations on what should and should not be done to tackle simultaneously the energy crisis and the climate crisis:

1. Policy-makers should focus on tackling the root of the crisis. The energy crisis was caused by an imbalance between energy supply and demand, with high prices as result. This means a need to reduce energy demand and increase the supply of secure, domestic and low-carbon energy, rather than ad hoc market interventions to reduce prices.
2. The EU and its Member States should pursue further reductions in energy demand, both through technical (energy efficiency, in particular through an accelerated renovation of the building stock) and non-technical (behavioural changes) approaches.
3. Both the investment rate and the deployment rate of renewable sources should at least double. To this end, the EU and its Member States should ensure a stable investment framework, simplify permitting procedures, and strengthen the energy grid, flexibility and storage capacities.
4. EU and national policies should encourage the electrification of energy end-use sectors to boost efficiency and reduce fossil fuel use. To this end, price signals should be aligned with climate objectives, including by pricing carbon emissions from all fossil fuels and by shifting tax burdens from electricity to fossil energy carriers. In this context, the Advisory Board welcomes the provisional agreement on the revision of the EU ETS Directive and looks forward to an ambitious outcome for the ongoing revision of the Energy Taxation Directive. The EU’s electricity market reform should also aim to incentivise investments in renewables while allowing markets to take advantage of low-cost electricity, which supports electrification in end-use sectors.
5. When implementing support measures, Member States should provide targeted, direct income support to the most vulnerable consumers. Non-targeted interventions such as general tax reductions and energy subsidies should be avoided, as they distort the price incentive for energy savings and investments in renewable energy. Where targeted direct income support is difficult to organize from a practical point of view, targeted price interventions such as social tariffs or block tariffs could be considered as a second-best solution.
6. When considering new investments in fossil gas infrastructure or committing to long-term supply contracts, a careful balance should be made between security of supply in the short-to-medium term and the resulting long-term carbon lock-ins.
7. The climate benefit of biomass fuels depends on their origin and whether they compete with other biomass purposes such as food and feedstocks. Any increase in the use of biomass fuels should be limited to the sustainable biomass that has limited added value, and its use should be prioritized for sectors with limited alternatives to fossil fuel substitution (such as aviation, shipping and certain industrial processes).
8. Any increase in the use of coal should be strictly limited in time and ramped down as soon as possible. The Advisory Board urges Member States to refrain from any investments into coal and oil infrastructure, including the exploration and extraction of new deposits.

The Advisory Board’s advice and accompanying letter to EU decision-makers can be found here.