Europe was forced to increase the power output of its coal and gas-fired plants to meet its energy needs once gas imports declined after Russia invaded Ukraine. Worries about an energy crisis stalled the continent’s green transition. But that trend has proven temporary, reflecting the efficacy of EU carbon pricing.
The increase in coal and oil-based power production in the European Union occurred during the first six months of the invasion and started declining last September. This surge and falloff occurred because of the EU’s Emissions Trading System (ETS), which compels European power producers to pay for carbon emissions. Power sourced from fossil fuels may be profitable when electricity prices are very high—as they were early in the war—but it quickly becomes unprofitable under the ETS when prices fall.
Power production from fossil fuels is expected to continue declining in 2023. A further increase in Europe’s solar and wind energy production now seems a given as more renewable capacity joins the energy grid. If the region receives sufficient rainfall, hydroelectric and nuclear power production will also grow. As the continent continues to reduce its reliance on Russian energy, climate change looms as the continent’s biggest energy priority.
This PIIE Chart is based on Jacob Funk Kirkegaard’s blog, Europe's energy problem is now climate change, not Russia.