Geopolitics & Energy Security - Atlantic Council

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

While there has not yet been any disruption to electricity flows from the EU into Ukraine, it is clearly in Kyiv’s interests to avoid disagreements where possible and to seek enhanced energy partnership with the country’s European neighbors. Closer cooperation with Slovakia and Romania in particular could pay major dividends. Indeed, recent research has found that transmission capacity could be more than doubled to five gigawatts. This could provide greater energy security, create jobs, and attract significant investments.

If completed, one existing power line project linking Slovakia and Ukraine could bring additional capacity of one gigawatt, enough to supply a million consumers. Work on this line began in 2013 and is seventy percent complete on the Ukrainian side, but nothing has yet been done on the Slovak side. Similarly, a proposed electricity power line linking Ukraine’s Pivdennoukrainska nuclear power plant to Romania would not only bring an additional one gigawatt of transfer capacity, but could also potentially end nearby Moldova’s dependence on electricity generated in the Kremlin-controlled Transnistria enclave.

Despite the numerous benefits offered by these projects, the Romanian and Slovakian governments remain unwilling to commit. This lack of political cooperation may contribute to a humanitarian crisis in Ukraine during the coming winter months that could spill over into neighboring countries. With the countdown to the cold season now already underway, there is no time to lose. Helping Ukraine to keep the lights on should be a priority for the whole of Europe.

Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. Her views are her own.

Under Mexican law, the new Congress takes office on September 1, but the new president takes office on October 1. The current government intends to present constitutional reforms to the new Morena-dominated legislature—the ruling party that will now likely have a supermajority—in a manner that could challenge certain policy adjustments by the new government. To that end, AMLO has stated that electoral and judicial constitutional reforms are his legislative priorities—repealing the 2013 energy reforms, which enabled an influx of foreign and private investment in Mexico’s energy sector during the mid-2010s, is not.

The outgoing government introduced complexities to private investment, especially in clean energy. These include suspending auctions in oil, gas, and clean energy, giving priority to the state electricity system operator CFE’s established fossil-based generation over cleaner and cheaper alternatives, and suspending implementation of the clean energy certificate program, which incentivized conversion to less carbon intensive electricity. Several of these actions are now the subject of disputes under the United States-Mexico-Canada Agreement (USMCA), and have disincentivized foreign investment in manufacturing, due to companies’ strict carbon-emission reduction targets—for them to set up shop or expand in Mexico, they require access to clean energy.

The government has also taken steps to prioritize Mexico’s long-established fossil-based power sector, but production by national oil champion Pemex is at historic lows despite a consistent influx of federal spending to revive the flagging company, which faces a looming debt crisis. Meanwhile, CFE is struggling to power Mexico’s growing economy amid the burdens of extreme heat and other climate-exacerbated energy challenges.

The federal government is in a challenging fiscal position, as its budget deficit is forecast to grow this year. In addition, there appear to be adverse market reactions to controversial, proposed judicial reforms, which include appointing judges by popular vote. Some foreign investors remain cautious, particularly in the energy sector.

Mexico’s golden economic opportunity requires clean energy to sustain it

Despite these investment challenges, Mexico holds vast potential as a nearshoring destination. For Mexico to capitalize on the USMCA and its proximity to the lucrative US export market, it will need to expand its energy supply not only for manufacturing, but also to power artificial intelligence use by data centers, which will increase demand for clean energy exponentially.

It will be in the interest of both US government and energy industry stakeholders to help Sheinbaum find a way to navigate among Morena’s different groups to develop a pragmatic policy approach that moves forward Mexico’s energy security and transition while maintaining a leading role for Pemex and CFE, which remains a central element of Morena’s policy platform. Public-private partnerships of many forms can be part of the solution.

It will be challenging but possible for Sheinbaum to retain the primacy of Pemex and CFE while also giving foreign and domestic investors full confidence that they will receive permits to build and obtain reasonable returns without fear that a popularly elected judiciary and weaker national regulators will undermine their projects.

Serious policymakers will be in charge

Sheinbaum wants to make her own mark on history as the first female president of Mexico, but faces a tough road ahead. The most important benchmarks will be her cabinet appointments, her commitment to a predictable and transparent policymaking process, and her engagement on the USMCA, which comes up for review in 2026.

The composition of Sheinbaum’s cabinet will be an indication of her intent to meaningfully address Mexico’s energy and fiscal challenges. So far, the news is positive, with serious policy professionals being tapped for high-level appointments. Current Finance Minister Rogelio Ramírez de la O, who is familiar with the overall fiscal challenge, including that posed by Pemex and CFE, is slated to remain in his post. Former Foreign Minister Marcelo Ebrard, a highly experienced and capable politician, was named economy minister and will play a steadying hand. Luz Elena González, an economist who until recently was finance secretary of Mexico City, will be the secretary of energy, demonstrating that the government understands the relevance of public finances for energy policy. Finally, current Foreign Minister Alicia Bárcena, who is experienced in environmental issues, will become environment minister and could be a relevant actor on energy transition.

The path forward

Sheinbaum’s commitment to clear, predictable policies will be an important marker of her style of governance. This can send positive signals to investors in areas such as energy import permits and infrastructure investment. Her approach to the 2026 USMCA review—which will be deeply impacted by whoever wins the US presidential election in November—will be another test of the Sheinbaum administration’s ability to navigate a delicate bilateral relationship. That review will be a top-line issue for both the US and Mexican governments, and early consultations are already underway. Energy will loom large in this review; both the US government and private stakeholders have a powerful motivation to ensure that energy disputes do not undermine the USMCA—they need it to remain strong enough to provide certainty for the wider cross-border relationship.

Sheinbaum has much to gain from reassuring investors, capitalizing on Mexico’s advantages in nearshoring, and addressing the country’s slow energy transition. She can creatively design a framework that respects Morena’s political stance on energy while increasing investor confidence. Sheinbaum will be looking for able and willing partners to craft solutions that maximize the potential of foreign investment and job creation in Mexico. Undoubtedly, the energy industry and civil society on both sides of the border all have a major interest in helping her succeed.

David L. Goldwyn served as special envoy for international energy under President Barack Obama and assistant secretary of energy for international relations under President Bill Clinton. He is chair of the Atlantic Council’s Energy Advisory Group.

Antonio Ortiz-Mena is a professor at the Center for Latin American Studies, Walsh School of Foreign Service, Georgetown University, and a partner at DGA Group.

The views expressed are the sole responsibility of the authors and not necessarily those of any institution with which they are affiliated.

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Dispatch from Rio: Can Brazil set the G20 leaders’ summit up for success?

Ananya Kumar, Mrugank Bhusari — Tue, 30 Jul 2024 20:14:51 +0000

RIO DE JANEIRO—As the Group of Twenty (G20) finance ministers and central bank governors gathered here last week, they were met with a dense haze rolling off the mountains that morphed into bright winter sunshine by day’s end. It was a fitting metaphor for the struggle, and for some of the success, of the Brazilian G20 presidency in trying to work through the complex geopolitical morass—especially the one caused by Russia’s invasion of Ukraine—that has hung over these ministers’ meetings for the past three years.

While previous G20 meetings have been noteworthy for their disagreements, Brazil has emphasized substance and consensus over geopolitics during its G20 presidency. Felipe Hees, the Brazilian diplomat and sous-sherpa of this year’s G20 presidency, explained this strategy on July 25 at an Atlantic Council conference on the sidelines of the meeting. Brasília, he said, has sought to acknowledge fundamental disagreements on geopolitics between some members, and then to sidestep them entirely at the ministerial level. The big question now is: How long can this approach last?

So far, Brazilian officials have chosen to focus on economic development issues that already enjoy widespread support. Last week, this approach resulted in one of the few joint G20 ministerial-level communiqués in the past two years. Released on July 26, this communiqué displays G20 members’ alignment on launching the Global Alliance against Hunger and Poverty under the Brazilian presidency. It’s an important topic for the host country, since Brazil is the world’s leading producer of soybeans, corn, and meat, and Brazilian President Luiz Inácio Lula da Silva has emphasized his country’s role in alleviating global food insecurity. At the same time, the issue has a wider resonance. At the Atlantic Council conference, Cindy McCain, executive director of the World Food Program, emphasized that “food security is a national security issue, and it should be labeled as one.”

Climate finance and the energy transition were at the forefront in Rio last week as well. Discussions focused on how to mobilize the public and private sector in achieving climate goals. At the Atlantic Council’s conference, Renata Amaral, the Brazilian secretary for international affairs and development in the Ministry of Planning and Budget, formally called for technical assistance from multilateral development banks for catastrophic weather events, such as the floods in southern Brazil this May. Immediately following the summit, US Treasury Secretary Janet Yellen headed to Belém, the capital city of the northern Brazilian province Pará. Located near the mouth of the Amazon River, Belém was a symbolic choice for the unveiling of the US Treasury’s Amazon Region Initiative Against Illicit Finance, which is intended to help combat nature crimes.

Another issue that garnered attention last week was wealth inequality, which the Brazilian president spotlighted in his speech on June 24. “The poor have been ignored by governments and by wealthy sectors of society,” he said. Despite disagreements on whether the G20 is the right forum for the issue, it issued the first ever ministerial declaration on taxation. While Brazil’s ambition was to move the needle on a 2 percent global wealth tax, the declaration simply said that ultra-high-net-worth individuals must pay their fair share in taxes. While this fell short of Brazil’s hopes on this issue, the meetings in Rio have done more on building consensus than the past two presidencies, which have been rife with outbursts over geopolitical issues between member states.

In 2022, the then G20 president, Indonesia, saw its plan to build international cooperation for the post-pandemic recovery paralyzed by Russia’s full-scale invasion of Ukraine in February. When finance ministers and foreign ministers met in April and July of the year, officials from Russia and from the United States and Europe walked out of the room when their counterparts spoke. Ministers failed to agree on a communiqué, and negotiations on climate and education also broke down over criticisms of the war. Ahead of the leaders’ summit in November 2022, Western leaders balked at the thought of sharing a table with Russian President Vladimir Putin, who ultimately did not attend the summit. In the end, the leaders could only agree to a declaration that was a broad, noncommittal summary of approaches to addressing global challenges.

Last year, India focused its G20 presidency on depoliticizing the issue of the global supply of food, fertilizers, and fuels, as well as on addressing climate change and restoring the foundations of negotiations at the forum. Its strategy was to move geopolitics off center stage by highlighting perspectives from the “Global South,” including formally adding the African Union as a full member, and thus shaping the platform as an action and communication channel between advanced economies and emerging markets.

This was difficult. Shortly into India’s presidency, Russia and China withdrew their support for the text in the Bali statement on Ukraine. At the technical level, none of the ministerial meetings produced a joint communiqué, and New Delhi was forced to issue chairs’ statements instead. Since the leaders’ summit in New Delhi, the outbreak of war between Israel and Hamas in October 2023 has made the job of navigating geopolitical tensions all the more difficult for Brazil.

While the Russian and Chinese leaders did not attend last year’s leaders’ summit, the New Delhi Declaration was nevertheless bolder and more specific than its Bali predecessor. It set the agenda for the G20 for the years ahead but offered few specifics on how to achieve these goals.

Will Brazil’s strategy of sidestepping geopolitics work at the leaders’ summit scheduled for November 18-19 in Rio? Finance ministers and central bank governors can ignore geopolitics; presidents and prime ministers often cannot. If Brasília concludes technical negotiations on the various proposals ahead of the leaders’ summit, then consensus-building at the gathering will be easier, as geopolitics will remain just an elephant in the room.

If Brazil is successful, it can end the stalemate that the G20 has found itself in and remake it into a relevant economic coordination body—one that can adequately address the goals of its emerging market and advanced economy members. If Brazilian officials are not successful, however, the forum’s relevance may begin to wane.

It has been in the interest of the last few G20 presidencies to keep up the balancing act between the United States, China, and Russia. Moreover, it is likely that South Africa will follow this approach as it takes on its presidency in 2025. As many of the discussions in Rio noted, however, what happens in the US presidential elections this November could determine both the relevance and the tone of the G20 meetings going forward.

Ananya Kumar is the deputy director, future of money at the Atlantic Council’s GeoEconomics Center.

Mrugank Bhusari is assistant director at the Atlantic Council’s GeoEconomics Center.

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#BalkansDebrief – Does the new EU-Serbia lithium deal undermine democracy? A Debrief with Ivan Vejvoda

sjones — Tue, 30 Jul 2024 16:30:00 +0000

IN THIS EPISODE

Does the new EU-Serbia lithium deal undermine democracy? The European Union’s recent memorandum of understanding with Serbia on raw materials has sparked debate across the Balkans. Signed during German Chancellor Olaf Scholz’s visit, the MoU revives a controversial lithium mining project, drawing opposition from many Serbians.

In this episode, Nonresident Senior Fellow Ilva Tare is joined by Ivan Vejvoda, Permanent Fellow at the Institute for Human Sciences and Head of Europe’s Futures Project in Vienna, to dissect this complex issue.

Does Mr. Vejvoda share the criticism that the EU and Germany are prioritizing lithium access in Serbia over essential democratic principles like environmental protection, rule of law, and independent media?

With concerns about weak independent institutions and a critical public sphere in Serbia, can the country uphold high environmental and social standards?

How can the EU ensure that such agreements maintain rigorous environmental and social principles?

Could this agreement reduce Serbia’s reliance on China, and what might be the broader geopolitical implications?

Join #BalkansDebrief for an in-depth discussion on the potential impacts of this deal and the geoeconomic and geopolitical interests of the EU in the Western Balkans.

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#BalkansDebrief is an online interview series presented by the Atlantic Council’s Europe Center and hosted by journalist Ilva Tare. The program offers a fresh look at the Western Balkans and examines the region’s people, culture, challenges, and opportunities.

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European energy security requires stronger power grids

Andrei Covatariu — Wed, 24 Jul 2024 20:47:50 +0000

In 2022, 63 percent of all energy consumed in the European Union (EU) was imported. Europe’s energy generation gap has come into focus amid the energy security challenges stemming from Russia’s full-scale invasion of Ukraine. But while Europe has weathered the storm, in part by deploying renewables and accelerating electrification, there is a pressing need to strengthen the backbone of a decarbonized energy system—Europe’s power grid.

A mismatch between supply security, climate ambition, and grid capacity

Upgrading electricity grids to enable decarbonization is a worldwide issue. The International Energy Agency (IEA) estimates that global grid investments must double to reach $600 billion per year by 2030 to meet nationally set climate objectives. In Europe, a recent study by Eurelectric suggests that the EU and Norway must invest €67 billion in grids per year to realize carbon neutrality by 2050.

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As the EU aims to reach a 42.5 percent—ideally 45 percent—share for renewables in its total energy mix by 2030, grid capacity must keep pace with rapidly growing clean energy generation.

Europe overall, including the UK, is making progress on renewable deployment, but a mismatch in grid capacity is already causing significant challenges. In Britain, for example, the connection queue for generation, storage, or energy-consuming projects waiting to be connected to the grid is projected to reach 800 gigawatts by the end of 2024. Grid congestion is also a major problem in the Netherlands, with industry and households asked to reduce demand at peak times to avoid blackouts. In Romania, a boom in state-backed prosumers without adequate storage facilities is placing significant stress on the grid.

Building the grid of the future

Currently, cross-border interconnections within the EU limit the amount of electricity that can be imported or exported, creating significant price discrepancies between neighboring states. Expected increases in electricity demand due to electrification will only exacerbate these distortions.

Enabling greater cross-border electricity trade is a must for solidifying energy security and solidarity across Europe. New high-voltage transmission lines could convert intermittent renewable generation into more baseload-like output by quickly moving excess clean electricity to regions in deficit.

To this end, debate continues in Brussels over creating an EU-wide supergrid that would enable high volumes of electricity to be transported across the continent. This would help level energy prices across borders, reduce equity concerns, and improve supply security over the short and long term.

Furthermore, the difficulties in predicting renewable energy generation and adapting consumption accordingly requires the digital transformation of energy grids. Digitalization can further integrate renewable generation through smart meters and smart appliances that can accurately forecast output and match it with flexible electricity consumption. This can help minimize grid congestion and enhance resilience in the face of intermittency.

Additionally, new sensor and software platforms can enable predictive maintenance that reduces the time infrastructure is out of service. Digital twins—virtual representations of physical power grids—use data analytics to model various scenarios, leading to higher operational efficiency, increased asset lifespan, and optimized energy flow. While a highly digitalized energy grid may also increase cyber threats, other sectors have demonstrated over decades that these threats can be mitigated through strategies that include rapid incident reporting to limit malware spreading and investment in threats monitoring systems.

The unavoidable but necessary cost

Upgrading and extending the grid would translate into higher tariffs paid by European end-users, who have already struggled with energy affordability. A spike in network tariffs could lead to negative social, economic, and—eventually—political consequences, as was seen during EU-wide protests in 2022, triggered by increasing energy bills.

Although these investments will impose direct and indirect costs on consumers in the short term, they will unlock over the medium and long term increased electrification and pass decreasing renewable generation costs onto rate payers. Today, onshore wind and solar photovoltaic energy are cheaper than new fossil fuel plants almost everywhere. The average cost of variable renewable energy generation is expected to drop further, from a levelized cost of electricity of $155 per megawatt hour in 2010 to $60 in 2028.

To finance these upgrades while minimizing the negative impacts on rate payers, new earmarked EU funds could complement tariff-based network revenues. While this has not been done before in advanced economies with complex electricity systems, policy innovation is required to keep the EU’s ambitious 2030 targets alive.

Not investing in transmission and distribution would jeopardize both European energy security and climate ambitions. By stalling deployment of renewable generation and thereby the electrification of heating and transport, failing to invest in the European grid would prolong high levels of fossil fuel imports. This would keep energy bills high, leave Europe exposed to fossil fuel supply insecurity, and place at risk Europe’s social and political fabric.

Bottlenecks to be addressed

Beyond financing challenges, building power infrastructure is notably slow. In Europe in particular, permitting procedures cause significant delays. The IEA highlights that the United States and EU have the longest deployment times for distribution—around three years—and transmission lines—between four and twelve years. The COVID-19 pandemic has made the problem worse, creating high demand while constricting supply for power grid components.

Regulatory frameworks are also constraining grid development. While the regulation of these natural monopolies has evolved in Europe to liberalize and unbundle the sector, national regulatory authorities need to deal with greater uncertainty; for instance, the rate of electrification and improvements on energy efficiency are difficult to predict. They will need to manage increased investment while encouraging innovation and keeping tariffs in check. Energy regulators must learn from previous experience, respond to current challenges, and anticipate future trends—all at the same time.

The overlooked factor in European energy security

Energy security in Europe hinges on the state of its power grids. As reliance on renewable energy and electrification grows, existing grid infrastructure is struggling to keep pace, causing congestion and delays. Substantial investments in grid upgrades and modernization are essential for integrating renewables, accelerating the electrification of heating and transportation, building technical redundancies to enhance resilience, combatting cyber threats, and protecting against extreme weather events.

While difficult to sell politically, investments in grid infrastructure will ultimately pay off in lower energy bills for consumers and industry, compared to a business-as-usual scenario. Failing to achieve these objectives will imperil Europe’s security of supply and its capacity to build a resilient energy future.

Andrei Covatariu is a Brussels-based energy expert. He is a senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his personal opinion.

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EnergySource Oct 10, 2023

The case for investing in Ukraine’s energy future

By Mark Temnycky

Despite uncertainty over when the war will end and corruption in Ukraine, international investors should see Ukraine’s energy reconstruction as an opportunity to create a European energy leader.

Energy & Environment Energy Transitions

EnergySource Sep 14, 2023

What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

The future of Gazprom’s piped deliveries to Europe looks bleak. However, Europe has no binding timeline for phasing out Russia’s growing LNG exports. Reducing these import will be critical to bringing Ukraine closer to victory and for securing Europe’s energy system.

Economic Sanctions Economy & Business

EnergySource Mar 10, 2023

Clean industrial policies: A space for EU-US collaboration

By Théophile Pouget-Abadie, Francis Shin, Jonah Allen

EU-US tensions over clean industrial policy could derail the energy transition. Collaboration on equal footing would bolster collective security and drive emissions reductions to new levels.

Energy & Environment Energy Markets & Governance

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NATO needs a strategy to address Russia’s Arctic expansion

David Babikian and Julia Nesheiwat — Tue, 09 Jul 2024 17:07:40 +0000

This week, NATO will hold its landmark seventy-fifth anniversary summit. The Washington, DC, event is expected to focus on trade security, the war in Ukraine, and the organization’s greatest adversary, Russia. This comes on the heels of news that a record twenty-three out of thirty-two NATO countries will reach the Alliance’s defense spending target of 2 percent of gross domestic product this year, according to NATO statistics published on June 17. This increase in spending is in large part a direct response to Russia’s full-scale invasion of Ukraine.

At the same time, the danger Russia poses extends well beyond Eastern Europe. The Washington summit provides the Alliance an opportune moment to develop a strategy to address Russia’s growing, and unsettling, Arctic presence, which is connected with Moscow’s complex cooperation with China in the region and with new sea lanes opening due to accelerated ice melting in the region.

Russia has long viewed the Arctic as a crucial source of income, national pride, and strategic importance. The Russian military has continued to establish an outsized Arctic presence even during its war in Ukraine, now consisting of the Northern Fleet, nuclear submarines, radar stations, airfields, and missile facilities. A large share of this presence is concentrated in the Kola Peninsula, near NATO allies Finland, Sweden, and Norway. According to the International Institute for Strategic Studies, Russia operates one-third more military bases in the Arctic Circle than all NATO members put together.

Moscow’s interest in securing its trade routes in the High North has been boosted by Russia’s alignment with Beijing.

NATO members should note that Russia has outpaced the Alliance in its establishment and usage of trade corridors in the Arctic region, funded heavily by Chinese investment. Transporting energy and mineral commodities via the Northern Sea Route (NSR) presents strong advantages to Russia: staying within its territory and circumventing the Suez Canal shortens Russian tankers’ trips to China by about ten days per journey. As climate change warms the Arctic at a pace far exceeding other parts of the world, the viability of the NSR will increase and the region’s strategic importance will continue to grow. Historically, Russian energy in the High North has been dispatched using ships specially built to navigate sea ice, but in September 2023, the first shipment was sent using a conventional, non-ice class oil tanker due to high levels of summer ice melt, an increasingly common phenomenon.

“The energy crisis that has emerged from the Ukraine war has been building for decades,” Paul Sullivan, an energy and international relations professor at Johns Hopkins University, told us. “Russia’s development of Arctic LNG [liquefied natural gas] and usage of the NSR should be of top concern to NATO countries with concerns about the precarity of energy sources and trade routes, respectively.”

Russia’s economic dependence on exporting its extensive energy and mineral resources has led to strengthened cooperation with China, an imperfect relationship based on mutual need. Chinese state-owned energy enterprises have in the past five years invested billions of dollars in Russian oil and gas ventures and mineral projects in the Arctic. Since facing Western sanctions, Russian reallocation of its crude oil supply to a discounted Chinese market cemented the partnership between the two nations. Since then, this infrastructure investment for ports, pipelines, mines, and railways has surged. Moscow’s interest in securing its trade routes in the High North has been boosted by Russia’s alignment with Beijing, which has affirmed its own involvement in the region as a “near-Arctic state.” For example, Russian and Chinese vessels were spotted in August 2023 conducting joint military exercises near Alaska’s Aleutian Islands. That said, NATO members rethinking Arctic strategies should take a clear-eyed approach as to the extent of the “no limits” partnership between Moscow and Beijing. At the beginning of June, the Russian gas market announced a pause of the Power of Siberia 2 pipeline to China. The deal has reportedly stalled over monopsonistic Chinese demands to pay drastically lower prices for lower quantities of gas.

NATO’s Arctic member states—the United States, Canada, Norway, Sweden, Denmark, Finland, and Iceland—remain intent on maintaining free and navigable Arctic shipping lanes and are exploring their own energy and mineral resource projects in the region. Jennifer Spence, the project director of the Arctic Initiative at the Harvard Kennedy School’s Belfer Center, explained to us that “in these remote areas, military and economic infrastructure development go hand in hand—securitization of the Arctic can help facilitate investments in a more diversified economy for Arctic states.”

Recent European Parliament legislation to facilitate the construction of new mines to secure critical minerals has been a boon to Swedish mining companies, which have discovered mineral resources in the country’s north. In the United States, the ConocoPhillips Willow project is set to commence in northern Alaska’s National Petroleum Reserve, and in Canada, the federal government recently announced new investments in Arctic defense. Separately, the province of Alberta has worked with the state of Alaska to promote energy development ties. Per Spence, “commercial progress in the North American Arctic is comparatively more rhetoric than action, though signals of permanent infrastructure investment seem to be not too far behind.”

NATO’s Arctic member states have increasingly focused on the region as an important operational theater—and this trend should continue. Nordic countries have announced major NATO exercises in the High North as well as training events with the United States. Canada is procuring and deploying new Arctic-proof military aircraft and ships, and recently conducted joint exercises with the United States, demonstrating an independent investment in regional security. The United States has also increased its Arctic presence. This has included an initiative by the US Coast Guard and the US Navy, which built three Polar Security Cutters, upgraded versions of heavy-duty icebreakers replete with advanced sensors and equipment.

As of now, Russia’s pause in its Arctic developments reflects the status of commercial investment progress in the region. International sanctions, most of which were initiated by countries that are also NATO members, have taken a major toll on Russian Arctic commercial expansion (for example, Russian energy behemoth Novatek suspended production at its Arctic LNG 2 project in the spring due to sanctions and a shortage of ice-class gas tankers). As for NATO progress, according to Sullivan, the Johns Hopkins expert, the accession of Sweden and Finland “increases NATO’s Arctic footprint massively and thereby significantly improves its position.” With a vastly larger Arctic footprint and record levels of military spending, the time is ripe for NATO to further address the looming security consequences of Russia’s Arctic expansion. The NATO Summit in Washington provides the perfect moment for the Alliance to forge an even more unified approach to the future of security in the High North.

David Babikian is a graduate from Princeton University in economics. His research practice spans from work with policymakers, investment firms, and nongovernmental organizations, pertaining to climate resilience, commodities, and critical minerals. He is a fellow at Climate Cabinet.

Julia Nesheiwat is a distinguished fellow with the Atlantic Council’s Global Energy Center, a member of the Atlantic Council board of directors, vice president for policy at TC Energy, and the former US homeland security advisor.

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Caspian contributions to energy security in Europe

John M. Roberts and Julian Bowden — Wed, 03 Jul 2024 17:44:15 +0000

This issue brief examines the potential for new fossil fuel developments in the Caspian region to meet Europe’s energy needs. With increased regional interconnectivity, large fossil fuel resources, political support for fossil fuel development, and growth in domestic renewable energy generation, Caspian producers—namely Azerbaijan, Turkmenistan, and Kazakhstan—have the potential to meet this need on the timeline required. To do so, they must act on stated plans to increase natural gas production and tap domestic renewable energy sources.

This brief also examines the regional factors in Southeast Europe, including gas flows, infrastructure changes, and market demand, which would affect Caspian fossil fuel supplies’ availability in Europe. Georgia, Turkey, Italy, and Southeast and Central Europe stand to directly benefit from Caspian gas via the Southern Gas Corridor. They can also serve as conduits of these supplies further north and west.

However, economic and geopolitical factors could hinder the rapid production and export of additional supplies from the Caspian region. Raising finance for oil and gas projects has become difficult as international financial institutions and the European Commission seek to reduce fossil fuel investment. Moreover, while proposals on both sides of the Caspian for large-scale hydrogen export projects targeted at European markets are ambitious, the complexity of delivery means they may take years to mature. Azerbaijan’s military actions in Nagorno-Karabakh may also impact European willingness to increase energy reliance on Azerbaijan. By successfully navigating these obstacles, Caspian producers can further contribute to European energy security.

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Strengthening Taiwan’s resiliency

Franklin D. Kramer, Philip W. Yu, Joseph Webster, Elizabeth Sizeland — Tue, 02 Jul 2024 13:00:00 +0000

Introduction
Establish a comprehensive security strategy
Cybersecurity and critical infrastructure resilience
Energy
Food and water resiliency
Enhancing defense resilience
Conclusion
About the authors
Acknowledgments

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Introduction

This report recommends actions for the new leadership of Taiwan to take to enhance its societal resilience against Chinese aggression in the context of both “gray zone” conflict and wartime attacks. The report focuses on establishing a comprehensive security strategy and analyzes three key areas particularly important for effective resilience: enhancing cybersecurity for critical infrastructures; improving energy security; and accelerating defense transformation.

The new administration of Lai Ching-te faces both existing resilience challenges and the potential for significantly greater problems if the People’s Republic of China (PRC) pursues expanded gray zone activities or if actual conflict occurs.¹ The ongoing challenges include substantial disinformation campaigns, cyberattacks, military incursions, and periodic economic coercion. Potential future challenges could involve expansion of one or more of these ongoing Chinese activities. In the context of a more contested environment such as a quarantine,² blockade, or a kinetic conflict, Chinese actions could seek to cause leadership failures and loss of social cohesion; undertake cyberattacks to target critical infrastructures; generate energy shortages; and seek to defeat Taiwan militarily before the United States could provide effective support. The potential for such harms substantially increases the importance of resilient responses by Taiwan.

The report recommends four major sets of actions to enhance Taiwan’s resilience:

Establish a comprehensive security strategy that engages government, the private sector, and individuals in cooperative efforts to ensure all facets of resilience including:
1. Risk analyses and priority requirements.
2. Organization of data relevant to responding to challenges from the PRC.
3. Development of expertise in key areas required for response.
4. Provision of governmental leadership and activation of the whole nation as part of a comprehensive approach.
Enhance cybersecurity by establishing:
1. Off-island, cloud-based capabilities to duplicate governmental and other critical functions.
2. Working arrangements with high-end, private-sector cybersecurity providers.
3. A surge capability of cybersecurity experts.
4. Regular engagement with US Cyber Command’s Hunt Forward program.
5. Alternatives to undersea cables through low-earth orbit (LEO) communications satellites.
Bolster energy security resilience by:
1. Rationalizing—that is, increasing—energy prices, especially for electricity.
2. Supporting indigenous supply, including nuclear energy.
3. Prioritizing energy needs.
4. Dispersing and hardening energy storage facilities.
5. Preparing comprehensive rationing plans for energy.
Enhance defense resilience by:
1. Continuing the trend of higher defense spending to at least 3 percent of gross domestic product (GDP).
2. Leveraging Taiwan’s strength in high tech manufacturing and shipbuilding to accelerate the development of a Ukraine-style, public-private “capability accelerator”³ for emerging technologies.
3. Fielding low-cost, high-effectiveness capabilities including unmanned surface vessels, unmanned aerial vehicles, and naval mines.
4. Incorporating training in emerging technologies and unconventional tactics for conscripts and reserves.
5. Investing in East Coast port infrastructure as counterblockade strongholds.
6. Raising the All-out Defense Mobilization Agency (ADMA) to the national level and implementing a larger civil defense force that fully integrates civilian agencies and local governments.

Establish a comprehensive security strategy

Resilience is not a new theme in Taiwan. Former President Tsai Ing-wen, who completed two terms in office on May 20, entitled her 2022 National Day Address “Island of Resilience,”⁴ and similarly identified resilience as a key factor for Taiwan in her two subsequent National Day addresses.⁵ “The work of making the Republic of China (Taiwan) a more resilient country is now our most important national development priority,” she stated in that 2022 speech, in which she articulated four key areas of resilience: economy and industry, social safety net, free and democratic government system, and national defense. What is left undone, however, is aligning these and other resilience elements into a comprehensive security strategy similar to those undertaken by Finland⁶ and Sweden,⁷ which utilize a whole-of society approach to enhance resilience.

Resilience is a nation’s ability to understand, address, respond to, and recover from any type of national security risk. Given the scale of risk Taiwan faces from China, domestic resilience should be front and center in Taiwan’s national security strategy.⁸ Comparable comprehensive national security approaches, such as the Finnish model, aim to foster and enable an engaged national ecosystem of partners, each with a clear understanding of their roles and responsibilities. Finland’s model is instructive, underscoring the importance of engagement by the entire society:

The Security Strategy for Society lays out the general principles governing preparedness in Finnish society. The preparedness is based on the principle of comprehensive security in which the vital functions of society are jointly safeguarded by the authorities, business operators, organisations and citizens.⁹

Comprehensive security thus is far more than just government activities:

Comprehensive security has evolved into a cooperation model in which actors share and analyse security information, prepare joint plans, as well as train and work together. The cooperation model covers all relevant actors, from citizens to the authorities. The cooperation is based on statutory tasks, cooperation agreements and the Security Strategy for Society.¹⁰

The Finnish strategy identifies seven “vital functions” as key areas: leadership; international and European Union activities; defense capability; internal security; economy, infrastructure, and security of supply; functional capacity of the population and services; and psychological resilience.¹¹

Taiwan has taken a variety of actions to enhance resilience including the establishment in 2022 of the All-out Defense Mobilization Agency.¹² That agency has a useful but limited scope with its mandate of “comprehensive management of ‘planning for mobilization, management, service, civil defense, [and] building reserve capacity.’ ”¹³ But while defense is important (and further discussed below), as the Finnish and Swedish strategies underscore, Taiwan should expand its approach to resilience to include the full spectrum of governmental, private sector, and individual tasks—and the necessary cooperative efforts to make them most effective.

President Lai’s recent election ushered in an unprecedented third consecutive term for the Democratic Progressive Party.¹⁴ This outcome not only provides continuity in the agenda set by the island’s duly elected leader, but also presents an opportunity to sharpen the focus areas for resilience. As Taiwan transitions to a Lai presidency, the challenge of shoring up the island’s resilience should be at the forefront.

As a valuable starting point for establishing such an expanded resilience strategy, the Lai government should undertake extensive consultations with both Finland and Sweden—which could be facilitated as necessary by the United States. Taiwan should also seek to engage with the Hybrid Center of Excellence, based in Finland, which is an “autonomous, network-based international organization countering hybrid threats.”¹⁵

The discussion below describes several important elements of a comprehensive resilience strategy, and it will be a crucial task for the Lai administration to expand Taiwan’s current efforts to the full scope of such an approach. Resilience is a team game with the whole of society playing a role. But only Taiwan’s central government can act as the team captain, setting expectations, establishing priorities, formulating and communicating national strategy, and coordinating activities. Only leaders in national-level government can oversee the critical work of developing institutional effectiveness in key areas of risk management and resilience.

As a starting point, Taiwan should undertake a comprehensive audit now to uncover any gaps in the country’s ability to understand, respond to, and recover from both the chronic risks it currently faces and any more acute manifestations of PRC aggression in the future. Taiwan’s government should examine the following areas to pursue greater resilience:

Activating the whole nation: Working with the private sector and local government, and communicating to households are essential to develop a truly comprehensive approach to Taiwan’s resilience.
Understanding risk: Developing a set of scenarios that will help prioritize activities across government and beyond. Prioritizing is critical where resources are limited—as is identifying areas of cross-cutting work that can help to reduce risk in multiple scenarios.
Building data capacity: Laying a foundation for data exploitation needs will be critical for Taiwan, which will need this capacity both ahead of and during any crisis response. Preparing for and providing this capacity is not just the preserve of government, as commercially available and industry data sources will provide critical insights. Planning to access, receive, store, and process this data needs to start early, as the foundations for technical infrastructure, capabilities, data-sharing policies, and data expertise in government all require time and cannot just be activated on the cusp of crisis. Part of this work entails developing scenarios to help analysts map out gaps in information sources (intelligence, open source, commercial, and from allies) that Taiwan will likely need in each circumstance to build situational awareness. Ahead of and during crisis, risk assessment and effective decision-making will be highly dependent on the availability, quality, and usability of intelligence, information, and data.
Expanding its network of professional skills and resources: Assessing the range of skills and the levels of resourcing needed in government to manage a long-term crisis posture should start well ahead of any crisis. It would be helpful to look now at the gaps in key areas of professional expertise: analysts, data experts, crisis-response professionals, and operational planners will all be needed in larger numbers to sustain an effective response. Taiwan will also need professionally administered and well-exercised crisis facilities, resilient technical infrastructure, and business continuity approaches in place.
Preparedness and planning: Thinking through potential impacts of crisis scenarios in advance and working up potential policy and operational responses will bolster the quality of adaptability, which is an essential component of resilience. The process of exercising and refining plans is also helpful to build the professional connections and networks that will be activated during a live response.

Working with countries that are already developing vanguard resilience capabilities could help Taiwan quickly establish a workable model. For example, the United Kingdom’s National Situation Centre¹⁶—built in less than a year during the COVID-19 pandemic—is a model of developing access to critical data in peacetime and lessons learned from previous crisis scenarios about the practical challenges a nation could face in a variety of scenarios. Many commercial providers offer competent ways of displaying data insights on dashboards, and while this is helpful, it is only part of what can be achieved.

As a model for its broader resilience requirements, Taiwan will have the benefit of its existing efforts including in the counterdisinformation arena, where it has programs as effective as any in the world, despite the fact that Taiwan consistently faces the world’s highest volume of targeted disinformation campaigns.¹⁷ The saturation of PRC information manipulation across Taiwan’s traditional and social media platforms is strategically designed to undermine social cohesion, erode trust in government institutions, and soften resistance to Beijing’s forced unification agenda, while sowing doubts about America’s commitment to peace and stability in the region.

Taiwan has developed a multifaceted strategy to combat this onslaught, eschewing heavy-handed censorship in favor of promoting free speech and empowering civil society. This approach serves as a beacon for other democracies, demonstrating how to effectively counter disinformation through rapid-response mechanisms, independent fact-checking, along with widespread media literacy initiatives. Collaborative efforts such as the Taiwan FactCheck Center, Cofacts, and MyGoPen have proven instrumental in swiftly identifying and debunking false rumors, notably during the closely watched presidential election on January 13.¹⁸

Taiwan’s Minister of Digital Affairs (MoDA) attributes the island’s success in combating this “infodemic” to its sophisticated civil-sector efforts, which avoids reliance on reactive takedowns of malicious content akin to a game of whack-a-mole. Much like its handling of the pandemic—where Taiwan achieved one of the world’s lowest COVID-19 fatality rates without resorting to draconian lockdowns—it has demonstrated resilience and innovation in the digital sphere.¹⁹

Taiwan’s response to disinformation demonstrates that it is well-positioned to establish a comprehensive approach to societal resilience. The discussion below describes several important elements of a comprehensive resilience strategy, but it will be a crucial task for the Lai administration to expand Taiwan’s current efforts to the full scope of such an approach.

Cybersecurity and critical infrastructure resilience

Cyber risks to critical infrastructures

Like all advanced economies, Taiwan depends on its critical infrastructures. Critical infrastructures have been described as “sectors whose assets, systems, and networks, whether physical or virtual, are considered so vital . . . that their incapacitation or destruction would have a debilitating effect on security, national economic security, national public health or safety.”²⁰ Since several critical infrastructures are interlinked, it is important in evaluating resilience to “capture cross-cutting risks and associated dependencies that may have cascading impacts within and across sectors.”²¹ Among those interlinked critical infrastructures are energy, communications, transportation, and water. Each of these are critical to society as a whole and each are dependent on digital technology for their operations.

In Taiwan, the Administration for Cyber Security has identified critical infrastructures “by their feature types into the following eight fields: energy, water resource, telecommunications, transportation, banking and finance, emergency aid and hospitals, central and local governments, and high-tech parks.”²² It is worth underscoring that several of Taiwan’s critical infrastructures, such as the electric grid²³ and the water system,²⁴ are significantly centralized or have other notable vulnerabilities such as the dependency on undersea cables for international communications²⁵ that increase the potential consequences from a successful cyberattack.

The Taiwan government has fully recognized the significant risks from cyberattacks. As described by Taiwan’s Administration for Cyber Security, “Due to Taiwan’s unique political and economic situation, the country faces not only a complex global cyber security environment but also severe cyber security threats, making the continuous implementation and improvement of cyber security measures a necessity.”²⁶

The number of cyberattacks against Taiwan is notable.²⁷ Published estimates range from five million cyberattacks per day against Taiwanese government agencies²⁸ to the detection of 15,000 cyberattacks per second, including attempted intrusions, in Taiwan during the first half of 2023.²⁹

The attacks often focus on key societal infrastructures. A recent Voice of America report noted that just prior to the January 2024 elections:

Most of the attacks appeared to focus on government offices, police departments, and financial institutions, with the attackers focused on internal communications, police reports, bank statements and insurance information.³⁰

Google researchers have likewise described the cyber threat to key critical infrastructures, revealing that it is “tracking close to 100 hacking groups out of China [and that these] malicious groups are attacking a wide spectrum of organizations, including the government, private industry players and defense organizations.”³¹

The attacks themselves are often relatively sophisticated. Trellix, a cybersecurity firm, described multiple techniques utilized by attackers that “focused on defense evasion, discovery, and command and control . . . to subvert system defenses to gather information about accounts, systems, and networks.” Among them are “living-off-the-land” techniques, which allow attackers to maintain their intrusions over time with smaller chances of detection.³²

While no one can say with certainty what actions the PRC would take in the context of a blockade of or outright conflict with Taiwan, the United States is clear-eyed about the potential for attacks on its own critical infrastructures if engaged in conflict with China. The February 2023 Annual Threat Assessment of the US Intelligence Community notes the likelihood of such PRC cyberattacks in that context:

If Beijing feared that a major conflict with the United States were imminent, it almost certainly would consider undertaking aggressive cyber operations against U.S. homeland critical infrastructure and military assets worldwide . . . China almost certainly is capable of launching cyber attacks that could disrupt critical infrastructure services within the United States, including against oil and gas pipelines, and rail systems.³³

The ongoing Russian cyberattacks against Ukraine in the Russia-Ukraine war further underscore the reality of critical infrastructures as a target in a conflict. It seems reasonable to assume that comparable actions (and perhaps even more) would be undertaken against Taiwan in the event of a blockade or kinetic conflict. “Probable targets,” according to James A. Lewis, would include critical infrastructures such as electrical power facilities, information and communications systems, and pipelines.³⁴

Actions to enhance Taiwan’s cyber resilience

Taiwan can enhance its cyber resilience through its own actions and in collaborative activities with private-sector companies and with the United States. While cyberattacks can be highly disruptive, one of the important lessons of the Ukraine-Russia conflict is that the effects on operations can be mitigated, as described in a CyberScoop analysis that underscores a shift in expectations:

The war has inspired a defensive effort that government officials and technology executives describe as unprecedented—challenging the adage in cybersecurity that if you give a well-resourced attacker enough time, they will pretty much always succeed. The relative success of the defensive effort in Ukraine is beginning to change the calculation about what a robust cyber defense might look like going forward.³⁵

According to the analysis, the critical element for such success has been significant multinational and public-private collaboration:

This high level of defense capability is a consequence of a combination of Ukraine’s own effectiveness, significant support from other nations including the United States and the United Kingdom, and a key role for private sector companies.
The defensive cyber strategy in Ukraine has been an international effort, bringing together some of the biggest technology companies in the world such as Google and Microsoft, Western allies such as the U.S. and Britain and social media giants such as Meta who have worked together against Russia’s digital aggression.³⁶

Actions by Taiwan

Taiwan should utilize the Ukraine model of cyber resilience—backed in part by private-sector companies—and take comparable actions to enhance its cybersecurity. Taiwan has a substantial existing cybersecurity framework on which to build such mitigating actions. Since 2022, the Ministry of Digital Affairs, through its Administration for Cyber Security, is responsible for “implementing cyber security management and defense mechanisms for national critical infrastructures” including “evaluating and auditing cyber security works at government agencies and public entities.”³⁷ Utilizing that framework, Taiwan should undertake the following four actions that would significantly enhance the island’s cybersecurity resilience.

First, Taiwan should utilize cloud-based capabilities to establish a duplicative set of cyber-enabled governmental functions outside of Taiwan. Ukraine undertook such actions, thereby rendering Russian cyberattacks in Ukraine unable to disrupt ongoing governmental activities. Taiwan’s Ministry of Digital Affairs has been evaluating the use of public clouds including the possibility of “digital embassies” abroad to hold data.³⁸ Taiwan should organize such actions with key cloud providers such as Amazon Web Services, which provided support to Ukraine.³⁹ The United States should work with Taiwan and appropriate cloud providers to help effectuate such a result.

Second, Taiwan should establish arrangements with private-sector cybersecurity providers to undertake defensive operations against PRC cyberattacks in the context of a blockade or kinetic conflict. As noted above, such private-sector actions have been instrumental to Ukraine, and would similarly be invaluable for Taiwan. The United States should also help facilitate such private-sector defensive cyber operations for Taiwan.

Third, Taiwan should organize a surge capability of individual cybersecurity experts who can be called upon to complement governmental resources. Both Estonia and the United Kingdom have very effective cyber-reserve approaches, and Taiwan should engage with each country, seeking lessons learned as part of establishing its own reserve corps.

Fourth, Taiwan needs to accelerate its low-earth orbit satellite communications program. The Ministry of Digital Affairs’ two-year, US$18 million plan to strengthen the resilience of government communications entails building more than 700 satellite receiver stations. The impetus: ships from mainland China have repeatedly severed submarine internet cables in what Taiwan perceived as “a trial of methods” that the PRC could use to prepare for a military invasion.⁴⁰

The existing program involves satellites as well as ground-based receivers. The Taiwan Space Agency disclosed its plan for a “dedicated” LEO satellite communications project in late 2022,⁴¹ as a public-private partnership:

Distinct from traditional government programs, this groundbreaking project is structured as a privately operated venture, wherein the Taiwanese government would retain a substantial minority ownership. . . . This project intends to enhance the Taiwan Space Agency’s initial proposal for two government-built LEO satellites by evolving it into a “2+4” configuration. This will involve constructing four additional satellites through collaborative efforts between the public and private sectors.⁴²

Actions with the United States

In accord with the Taiwan Relations Act,⁴³ and as a matter of long-standing policy, the United States strongly supports Taiwan’s defensive capabilities including for cybersecurity. The Integrated Country Strategy of the American Institute in Taiwan (essentially the unofficial US embassy) specifically provides that “bolster[ing] Taiwan’s cybersecurity resilience” is one of the United States’ strategic priorities for the island.⁴⁴ To support that objective, the United States can enhance Taiwan cybersecurity through cooperative defensive activities.

First, US Cyber Command regularly supports the network resilience of allied countries and partners through its “Hunt Forward” operations, which are “strictly defensive” joint ventures, undertaken following an invitation from the ally or partner, to “observe and detect malicious cyber activity” on these networks, together searching out “vulnerabilities, malware, and adversary presence.”⁴⁵

While Taiwan has not been specifically identified as a Hunt Forward participant, Anne Neuberger, who is the US deputy national security advisor for cyber and emerging technology, said at a Politico Tech Summit in 2023 that in the event of a major cyberattack on Taiwan, the United States would “send its best teams to help hunt down the attackers, the same approach typically used to help global allies in cyberspace.”⁴⁶ She described the typical approach as:

Putting our best teams to hunt on their most sensitive networks to help identify any current intrusions and to help remediate and make those networks as strong as possible.”⁴⁷

Neuberger also highlighted US work with Taiwan to carry out military tabletop games and exercises to prepare for potential cyberattack.⁴⁸

More recently, the National Defense Authorization Act (NDAA) for Fiscal Year 2024 explicitly authorized the Defense Department to cooperate on:

Defensive military cybersecurity activities with the military forces of Taiwan to (1) defend military networks, infrastructure, and systems; (2) counter malicious cyber activity that has compromised such military networks, infrastructure, and systems; (3) leverage United States commercial and military cybersecurity technology and services to harden and defend such military networks, infrastructure, and systems; and (4) conduct combined cybersecurity training activities and exercises.⁴⁹

Going forward, those authorities authorize not only Hunt Forward actions but also actions to leverage commercial and military technology to harden such networks (which would seem to resolve any export control issues) and to conduct combined training and exercises, all of which underscores clear congressional approval for enhanced cybersecurity activities with Taiwan.⁵⁰

Second, the United States should undertake to enhance Taiwan’s communications resilience by making available access to US commercial and military LEO networks. The important role of the commercial provider Starlink in assuring communications in the context of the Ukraine-Russia war is well-known.⁵¹ Starlink’s parent company, SpaceX, is, however, controlled by Elon Musk, whose Tesla company has major investments in China. That linkage has raised the question of whether Taiwan could rely on any commercial arrangements it might make on its own with Starlink—particularly since Starlink did impose some limitations on Ukraine’s use of the network.⁵² However, as previously described by one of the authors of this report, the US government has sway on such matters:

The Defense Production Act authorizes the [US] government to require the prioritized provision of services—which would include services from space companies—and exempts any company receiving such an order from liabilities such as inability to support other customers.⁵³

Accordingly, the US should rely on this authority to organize appropriate arrangements with Starlink—and other space companies that provide like capabilities—to ensure access that would support Taiwan communications. One way to do this would be to incorporate appropriate terms into the commercial augmentation space reserve (CASR) program arrangements that US Space Force is currently negotiating with civil space providers,⁵⁴ as part of the Department of Defense’s overall commercial space strategy.⁵⁵

Additionally, the DOD is developing its own LEO capability through a variety of constellations being put in place by Space Force.⁵⁶ Pursuant to the recent NDAA authorization noted above, DOD should work with the Taiwan military to ensure that those constellations will be available to support Taiwan as necessary.

Longer term, the United States should also undertake to enhance the resilience of Taiwan’s undersea cables. As previously proposed by one of the authors, the United States should lead in establishing an international undersea infrastructure protection corps. It should:

Combine governmental and private activities to support the resilience of undersea cables and pipelines. Membership should include the United States, allied nations with undersea maritime capabilities, and key private-sector cable and pipeline companies.⁵⁷

Such an activity would include focus on cybersecurity for undersea cable networks, hardening and other protection for cable landing points, and capabilities and resources to ensure expeditious repair of cables as needed.⁵⁸ To be sure, getting such an activity up and running will necessarily be a multiyear effort. However, Taiwan’s vulnerability underscores the importance of beginning promptly and working as expeditiously as possible.

Cybersecurity recommendations for Taiwan

Utilize cloud-based capabilities to establish a duplicative set of cyber-enabled governmental functions outside of Taiwan.
Establish arrangements with private-sector cybersecurity providers to undertake defensive operations against PRC cyberattacks.
Organize a surge capability of individual cybersecurity experts who can be called upon to complement governmental resources.
Accelerate the low-earth orbit satellite communications program.
Actively engage with Cyber Command’s Hunt Forward activities.
Enhance Taiwan’s communications resilience by making available access to US commercial and military LEO networks.
Undertake on a longer-term basis enhanced resilience of Taiwan’s undersea cables.

Energy

As part of its efforts to enhance resilience, Taiwan must mitigate its energy vulnerabilities, as its reliance on maritime imports for about 97 percent⁵⁹ of its energy needs creates acute risks. To lessen its dependency on maritime imports and strengthen its resiliency in the face of potential PRC coercion, Taiwan should curb energy and electricity demand, bolster indigenous supply, overhaul its inventory management, and prepare rationing plans. A resilient energy security approach would credibly signal to the PRC that Taiwan could hold out for long durations without maritime resupply.

Curbing demand by rationalizing prices

Taiwan’s ultra-low electricity prices are a security risk (and a black eye for its climate targets). Reliance on seaborne energy shipments presents straightforward security problems, and Taiwan’s low electricity prices subsidize consumption that is being met by imports of hydrocarbons, especially coal. The new Lai administration should make haste prudently, increasing electricity prices more frequently and significantly, without exceeding the limits of the politically possible.

Taiwan’s electricity price quandary is illustrated by Taipower, the state-owned monopoly utility. In 2022 and 2023, Taipower lost 227.2 billion New Taiwan dollars (NTD) and 198.5 billion NTD, respectively, as its per kilowatt hour cost of electricity sold substantially exceeded per unit prices.⁶⁰ Taipower’s prices failed to offset the steep rise in electricity input costs amid Russia’s invasion of Ukraine and the post-COVID-19 unsnarling of supply chains.

Taiwan’s electricity costs remain too low, diminishing the island’s resiliency, although policymakers have now taken some steps in light of the problem. The Ministry of Economic Affairs’ latest electricity price review, in March 2024, raised average prices by about 11 percent, with the new tariff reaching about 3.4518 NTD, or approximately $0.11 USD/kWh.⁶¹ This rationalization of prices, while welcome, is insufficient. In the United States, the rolling twelve-month ending price in January 2024 for all sectors totaled $0.127/kWh.⁶² Taiwan’s heavily subsidized electricity consumers therefore enjoy a discount in excess of 13 percent compared to their US counterparts, despite US access to low-cost, abundant, and indigenously produced energy.

Taiwan’s heavily subsidized electricity prices incentivize maritime imports, especially coal. Astonishingly, Taiwan was the world’s largest per capita user of coal generation for electricity in 2022, higher than even Australia, a major coal exporter.

Taiwan’s low electricity prices and use of coal expose the island to PRC economic coercion. Taiwan’s dependency on imported coal heightens its vulnerability in the summer, when the island’s electricity-generation needs peak. Concerningly, Taiwan has already experienced electricity shortfalls in summer peacetime conditions, including a wave of outages⁶³ between July and August 2022. With the island’s future summer cooling needs set to rise even further due to climate change and hotter temperatures, Taiwan’s electricity needs pose a vulnerability that the PRC may attempt to exploit.

Curbing Taiwan’s electricity demand during summer months is critical, necessitating a rise in prices. While this reduction is a principal energy security challenge, the island must also do more to secure supply, especially for nuclear energy.

Supply: Support indigenous production

Taiwan’s resiliency will be strengthened by producing as much indigenous energy as possible, especially during the critical summer months. Taiwan, which has virtually no hydrocarbon resources, can therefore indigenously produce only four different forms of energy at scale: nuclear energy, offshore wind, onshore wind, and solar. Taiwan should pursue each of these indigenous energy sources. Taiwan should apply “carrots” by strengthening incentives and payments for indigenous production. At the same time, applying the “stick” of higher prices to energy consumption, especially for energy imports, would bolster the island’s resiliency.

Taiwan’s renewable resources are significant and often economically viable, but they cannot secure adequate levels of resiliency by themselves. Taiwan’s wind speeds slow in the summer,⁶⁴ limiting onshore and offshore wind’s effectiveness in bolstering energy security. Additionally, Taiwan’s stringent localization requirements for offshore appropriately minimize PRC components and sensors in Taiwan’s offshore wind turbines, but also raise the costs of this technology. Taiwan’s solar potential⁶⁵ is also limited⁶⁶ by cloudy skies, frequent rainfall, and land scarcity.

Accordingly, nuclear energy is the most viable way for Taiwan to address its summer electricity needs without turning to maritime imports. While Taiwan’s nuclear reactors must acquire fuel from abroad, this fuel can be used for approximately eighteen to twenty-four months.⁶⁷ Taiwan should maintain its existing nuclear energy capacity; restart retired capacity as soon as politically and technically feasible; and seek new, incremental capacity over time.⁶⁸

Unpacking Taiwan’s storage complexities: Dispersal and hardening is critical

To cope with various contingencies, including the possibility of a prolonged summertime blockade, Taiwan should increase its stockpiles of energy, disperse inventory around the island, and harden facilities.

While Taiwan’s ability to hold out against a blockade involves by many factors, energy inventories are a critical element. Taiwan’s electricity reserves are limited: it reported fifty-six days of supply of coal inventories in February 2023,⁶⁹ and aims to raise its natural gas inventories from eleven days to more than twenty days by 2030.⁷⁰ These inventory levels should be expanded, in part because “days of supply” fail to encapsulate uncertainty. Demand fluctuates depending on temperature and other variables, while Taiwan’s access to energy storage inventories faces the risk of sabotage and, in certain scenarios, kinetic strikes.

Taiwan’s management of petroleum reserves is a matter of great importance, given the use of these fuels, especially diesel, for military matters. Taiwan’s Energy Administration, in the Ministry of Economic Affairs, reported in April 2024 that its total oil inventories stood at 167 days of supply.⁷¹ This topline figure presents an overly optimistic portrait of Taiwan’s petroleum security, however. For instance, Taiwan’s government-controlled inventories in April 2024⁷² included 2.6 million kiloliters of crude oil and refined products; private stocks added another 6.5 million kiloliters. Accordingly, Taiwan reports forty-seven days of supply from government stockpiles, with an additional 120 days from private inventories.⁷³ Given that domestic sales and consumption equated to about 54,200 kiloliters per day from prior comparable periods,⁷⁴ Taiwan calculated it had about 167 days of supply.

There may, however, be insufficient monitoring of private inventories. Marek Jestrab observed:

A concerning—and possibly significant—loophole exists in these laws, where the criteria and computation formulas for the actual on-hand security stockpiles will be determined by the central competent authority, and are not required to be disclosed. This presents the opportunity for energy that is loaded onboard merchant shipping while in transit to Taiwan to count toward these figures.⁷⁵

While Taiwan should ensure that stockpiles are actually on the island, and not at sea, it also needs to carefully examine the inventory split between crude oil and crude products, such as diesel, gasoline, jet fuel, etc. Additionally, Taiwan’s policymakers should not expect to rely on its crude inventories, which only have a latent potential: crude oil cannot be used until it is refined into a crude product. Therefore, if the PRC disrupted Taiwan’s refineries via cyber or even kinetic means, Taiwan would not be able to access the totality of its crude oil reserves.

Taiwan’s military requirements for fuel would likely surge during a confrontation or conflict with the PRC, reducing the “days of supply.” Since Taiwan’s military vehicles largely run on diesel, the island should pay careful attention to this product.

Taiwan should disperse and harden its energy assets, especially diesel storage, as concentrated objects would present inviting targets for the PRC. Beijing is studying Russia’s invasion of Ukraine closely and will not fail to notice that Moscow attacked about 30 percent of Ukrainian infrastructure in a single day.⁷⁶ As one author witnessed during his recent visit to Kyiv, Ukraine’s dispersal of electricity assets is achieving a reasonable degree of success. Indeed, Russia’s more recent campaign⁷⁷ attacking large-scale thermal and hydroelectric power plants illustrates the utility of dispersed energy infrastructure. Like Ukraine, Taiwan should disperse and harden its energy storage inventories to the maximal feasible extent.

Rationing plans

While both Taiwan’s electricity supply and demand will be very hard to predict in a state of emergency, rationing plans must be considered—especially for the island’s manufacturing and semiconductor industries.

Taiwan’s economy is uniquely⁷⁸ tied to electricity-intensive manufacturing, as industrial consumers accounted for more than 55 percent of Taiwan’s electricity consumption in 2023.⁷⁹ Most of these industrial producers (such as chipmaker Taiwan Semiconductor Manufacturing Company) service export markets—not Taiwan. While the PRC might attempt to disrupt the island’s energy and electricity supply via cyber and kinetic means, Taiwan’s electricity consumption would fall dramatically during a crisis if Taiwan’s industries were forced to shut down. Although the closure of Taiwan’s industry would prove economically ruinous, it would also make the island’s electricity and energy issues much more manageable. Adding an additional layer of complication, many of Taiwan’s most valuable exports – such as chips – are shipped via civilian airliners, not on seaborne vessels, and would consequently be more difficult to interdict in circumstances short of war.⁸⁰ Taiwan should prepare rationing plans for a variety of contingencies, adapting to a range of scenarios, including a quarantine, siege, or even kinetic conflict. Taiwan must be ready.

Energy recommendations for Taiwan

Gradually raise electricity and energy prices, communicating that price hikes will persist and require significant adjustments over the medium term.
Expand the frequency of electricity price reviews from twice a year to a quarterly basis. More frequent price adjustments will allow smaller incremental increases while also enabling Taiwan to respond more quickly to potential contingencies.
Expand fiscal support for indigenous forms of energy. Demand-side management programs could include virtual power plants, building efficiency measures, two-way air conditioning units, and more. On the supply side, Taiwan should incentivize indigenous energy production, including nuclear energy, onshore wind, offshore wind, and solar.
Extend the life of Taiwan’s nuclear energy power plants and consider expanding capacity. Nuclear energy is not only Taiwan’s best option for meeting its summer generation needs but also extremely safe and reliable. In the event of a conflict, the PRC is extremely unlikely to launch highly escalatory and provocative attacks against nuclear facilities on territory it seeks to occupy.
Bolster domestic energy supplies and decarbonization objectives including by considering easing localization requirements for offshore wind projects—while ensuring that PRC components and sensors are not incorporated.
Disperse and, where possible, harden energy and electricity assets and volumes across the island for both military and civil defense needs.
Examine potential alternatives to diesel, as diesel inventories can begin to degrade after several weeks, including “long-duration diesel” solutions that, while more polluting, could extend the shelf life of its inventories, enhancing the durability of Taiwan’s military and civil defense efforts.
Deepen liquified natural gas (LNG) ties with the United States. Contracting with US LNG producers would moderately bolster Taiwan’s energy security, as the PRC would be more reluctant to interdict US cargoes than vessels from other nations.
Conduct comprehensive studies into energy contingency planning, examining how energy and electricity would be prioritized and rationed during various scenarios.

Food and water resiliency

Taiwan’s food supply needs will be significant in the event of a contingency, but pale in comparison to its energy and water requirements. Taiwan’s water security is a serious concern, as it is already suffering from water access issues in noncrisis periods. Taiwan should prioritize scarce land for electricity generation, especially onshore wind and solar, which are much less water-intensive than coal and natural gas generation. Repurposing farmland for renewables would ease Taiwan’s electricity and water needs in peacetime and during any crisis.

Taiwan’s food security challenges are serious, but manageable. The island’s self-sufficiency ratio for food stands at about 40 percent, after rising somewhat in recent years. Unlike energy, however, Taiwan can both store food, especially rice, and replenish these inventories. Meals ready to eat (MREs) can store for more than eighteen months.

Additionally, the island would likely be able to resupply itself aerially in all situations short of conflict. The PRC might well be extremely reluctant to shoot down a civilian aircraft resupplying Taiwan with food. The PRC’s shootdown of a civilian aircraft would damage external perceptions of the PRC, and strengthen global support for sanctions. While there can be no certainty, the PRC’s self-interest in managing perceptions of a confrontation would increase the likelihood of the safe transit of aerial and perhaps even maritime food deliveries to the island.

Taiwan’s water access problems are serious. Water shortages have manifested even in peacetime, as Taiwan experienced a severe drought in 2021. During a contingency with the PRC, Beijing might attempt to exploit this vulnerability.

Luckily, Taiwan’s water resiliency can be strengthened by tackling agricultural consumption and, wherever politically and technically feasible, repurposing farmland for energy generation. From 2013 to 2022, 71 percent of Taiwan’s water consumption was attributable to agriculture. Meanwhile, Taiwan’s industries comprised only 10 percent of demand during that period, with domestic (i.e., residential and commercial) consumption accounting for the remainder. Taiwan’s water needs are growing, due to “thirsty” industrial customers, but the agricultural sector is primarily responsible for the majority of the island’s consumption, although consumption and supply sources vary across the island.

Taiwan’s policymakers recognize its water problems and have begun raising water prices, especially for heavy users. Taiwan should continue to encourage efficiency by gradually but perceptibly increasing water prices. Concomitantly, it should further reduce demand by repurposing water-intensive farmland for electricity generation, when feasible. Repurposing farmland will undoubtedly prove politically difficult, but it will also improve Taiwan’s water and electricity resiliency.

Food and water security recommendations

Prioritize energy and water security needs over food production.
Secure and disperse inventories of foodstuffs, such as MREs, medicines, and water, along with water purification tablets.
Bolster the island’s cold storage supply chains and overall foodstuff inventories.
Plan and work with partners to stage food supply if a Berlin airlift-style operation becomes necessary.
Continue to encourage water conservation by increasing water prices gradually but steadily.
Ensure redundancy of water supplies and systems, especially in the more populous northern part of the island.
Ensure that drinking water and sanitation systems can operate continuously, after accounting for any electricity needs.

SOURCES

Gustavo F. Ferreira and J. A. Critelli, “Taiwan’s Food Resiliency—or Not—in a Conflict with China,” US Army War College Quarterly: Parameters 53, no. 2 (2023), doi:10.55540/0031-1723.3222; Joseph Webster, “Does Taiwan’s Massive Reliance on Energy Imports Put Its Security at Risk?,” New Atlanticist, Atlantic Council blog, July 7, 2023, https://www.atlanticcouncil.org/blogs/new-atlanticist/does-taiwans-massive-reliance-on-energy-imports-put-its-security-at-risk/; Amy Chang Chien, Mike Ives, and Billy H. C. Kwok, “Taiwan Prays for Rain and Scrambles to Save Water,” New York Times, May 28, 2021, https://www.nytimes.com/2021/05/28/world/asia/taiwan-drought.html; “Water Resources Utilization,” Ministry of Economic Affairs (MOEA), Water Resources Agency, 2022, https://eng.wra.gov.tw/cp.aspx?n=5154&dn=5155; Meng-hsuan Yang, “Why Did Formosa Plastics Build Its Own Desalination Facility?,” CommonWealth Magazine, May 31, 2023, https://english.cw.com.tw/article/article.action?id=3440; and Chao Li-yen and Ko Lin, “Taiwan State-Owned Utility Evaluates Water Price Adjustments,” Focus Taiwan, January 26, 2024, https://focustaiwan.tw/society/202401260017#:~:text=As%20of%20Aug.

NOTE

The Berlin airlift of 1948 and 1949 demonstrates the power of aerial food replenishment logistics in an uncontested environment. From June 26, 1948, to September 30, 1949, Allied forces delivered more than 2.3 million tons of food, fuel, and supplies to West Berlin in over 278,000 airdrops. While Taiwan’s population of more than twenty-three million is significantly larger than West Berlin’s population of 2.5 million, the world civilian air cargo fleet has expanded dramatically over the past seventy-five years. In all situations short of conflict, Taiwan would be able to restock food from the air. For more on the Berlin airlift, see Katie Lange, “The Berlin Airlift: What It Was, Its Importance in the Cold War,” DOD News, June 24, 2022, https://www.defense.gov/News/Feature-Stories/Story/Article/3072635/the-berlin-airlift-what-it-was-its-importance-in-the-cold-war/.

Enhancing defense resilience

Ever since Beijing leveraged then-Speaker Nancy Pelosi’s August 2022 visit to Taiwan as an excuse to launch large-scale joint blockade military exercises, pundits have labeled the residual military situation around Taiwan as a “new normal.” Yet there is really nothing normal about a permanent presence of People’s Liberation Army (PLA) Navy warships menacingly surrounding the island along its twenty-four nautical mile contiguous zone, and nothing usual about increasing numbers of manned and unmanned military aircraft crossing the tacit median line in the Taiwan Strait—a line that held significance for seven decades as a symbol of cross-strait stability. Nor should it be viewed as normal that a steady stream of high-altitude surveillance balloons—which are suspected of collecting military intelligence—violate Taiwan’s airspace.⁸¹ Some have better described this “new normal” as a strategy akin to an anaconda noticeably tightening its grip around the island, drawing close enough to reduce warning time and provocative enough to raise the risk of inadvertent clashes. In other words, the PRC has unilaterally dialed up a military cost-imposition campaign meant to chip away at peace and stability across the Taiwan Strait, wear down Taiwan’s military, and erode confidence and social cohesion in Taiwan society.

Russia’s full-scale invasion of Ukraine in 2022 was an additional wake-up call for the citizens of Taiwan, following mainland China’s 2019 crackdown on Hong Kong freedoms, heightening recognition of the risks presented by the PRC and, in particular, that the long-standing status quo in cross-strait relations is no longer acceptable to Beijing. Taiwan thus finds itself in the unenviable position of simultaneously countering PLA gray zone intrusions and cognitive warfare—what NATO calls affecting attitudes and behaviors to gain advantage⁸²—while beefing itself up militarily to deter the growing threat of a blockade or assault.

With this backdrop, Taipei authorities have since embarked on long-overdue reforms in defense affairs, marked by several developments aimed at bolstering the island democracy’s military capabilities and readiness in the face of growing threats from Beijing.

First, Taiwan’s overall defense spending has undergone seven consecutive year-on-year increases, reaching 2.5 percent of gross domestic product.⁸³ While this is commendable, Taiwan’s defense requirements are very substantial, and its budget in US dollars is only $19.1 billion.⁸⁴ Accordingly, it will be important for Taiwan to continue the trend of higher defense spending to at least 3 percent of GDP both to bolster Taiwan’s military capabilities and as a deterrent signal to Beijing—and also to garner international community recognition that Taiwan is serious about its own defense. A key element will be to ensure that Taiwan has sufficient stocks of ammunition and other weapons capabilities to fight effectively until the United States could fully engage and in the event of a longer war. One area that deserves a high degree of attention is defense against ballistic and cruise missiles and unmanned vehicles. Especially in light of the recent coalition success in defeating such Iranian attacks against Israel, planning should be undertaken to assure comparable success for Taiwan against PRC attacks. Adding mobile, short-range air defenses to the high-priority list of military investments for Taiwan—such as the highly mobile National Advanced Surface-to-Air Missile System (NASAMS)⁸⁵—will make it harder for the PLA to find and destroy Taiwan defenses, especially if combined with passive means for target detection and missile guidance.

Second, the new president can kick-start an enhanced approach to defense by embracing full integration of public-private innovation and adopting Ukraine’s model of grass-roots innovation for defense, which has served it well through a decade of war against a much larger Russia. Recognizing that innovation is itself a form of resilience, Taiwan can draw valuable lessons from Ukraine, particularly in leveraging private-sector expertise. By implementing what some Ukrainian defense experts term a “capability accelerator” to integrate emerging technologies into mission-focused capabilities, Taiwan can enhance its resilience and swiftly adapt to evolving security challenges, including rapidly fielding a high volume of unmanned systems to achieve distributed surveillance, redundant command and control, and higher survivability.⁸⁶ This comprehensive approach, which recognizes the private sector as the greatest source of innovation in today’s complex security environment, holds significant potential for enhancing Taiwan’s defense capabilities through the utilization of disruptive technologies. The island’s overall resilience would significantly benefit by drawing the private sector in as a direct stakeholder in national defense matters.

Ukraine’s grass-roots model of defense innovation, spearheaded by volunteers, nongovernment organizations, and international partners, is a worthy and timely model for Taiwan. Ukraine’s approach has yielded significant advancements in drone warfare, as well as sophisticated capabilities like the Delta battlefield management system—a user-friendly cloud-based situational awareness tool that provides real-time information on enemy and friendly forces through the integration of data from sources such as drones, satellites, and even civilian reports.⁸⁷ This collaborative model, reliant on cooperation between civilian developers and military end users, has propelled Ukraine’s military technological revolution by integrating intelligence and surveillance tasks, while enhancing decision-making and kill-chain target acquisition. Taiwan will benefit from a comparable approach.

Third, as suggested above, Taiwan should focus a large portion of its defense budget on low-cost, highly effective systems. In terms of force structure, it appears that Taiwan has settled on a design that blends large legacy platforms of a twentieth-century military with the introduction of more survivable and distributable low-end asymmetric capabilities. The latter are best exemplified by Taiwan’s indigenously produced Ta Chiang-class of high-speed, guided-missile corvettes (PGG) and Min Jiang-class fast mine laying boats (FMLB).⁸⁸ But much more must be done to bolster Taiwan’s overall defense capabilities by focusing on less expensive, but nonetheless highly effective systems.

In Ukraine’s battle against Russian Federation invaders, drones have provided Ukrainian forces with important tactical capabilities by enabling them to gather intelligence, monitor enemy movements, and conduct precision strikes on high-value targets. Taiwan can comparably utilize low-cost UAVs to establish mesh networks that connect devices for intelligence, surveillance, and reconnaissance and for targeting that would be invaluable in countering a PRC amphibious assault. Lessons from Ukraine further highlight the importance of having the right mix of drone types and capabilities in substantial stockpiles, capable of a variety of missions. Notably, Ukrainian officials have called for the production of more than one million domestically produced drones in 2024.⁸⁹ Then-President Tsai’s formation of a civilian-led “drone national team” program is a commendable step in this direction and underscores the power of collaborative innovation in joint efforts between users.⁹⁰ Encouraging cooperation between Taiwan drone makers and US private industry will accelerate the development of a combat-ready unmanned systems fleet with sufficient range, endurance, and payload to enhance situational awareness and battlefield effects.

Concurrent with those efforts utilizing unmanned systems, Taiwan should bolster its naval mining capabilities as a strategic measure against PRC aggression. Naval mines represent one of the most cost-effective and immediately impactful layers of defense.⁹¹ In this regard, Taiwan’s new Min Jiang class of FMLB represents the right type of investments in capabilities which could prove pivotal in thwarting potential invasion attempts.

Even more significantly for a Taiwan audience, Ukraine broke a blockade of its Black Sea ports using a combination of naval drones and coastal defense missiles—and repelled the once-mighty Russian Black Sea Fleet—all without a traditional navy of its own.⁹² Faced with clear intent by a PLA Navy practicing daily to isolate the island, the time is past due for Taiwanese authorities to hone their own counterblockade skills including a heavy reliance on unmanned surface vehicles.

Taiwan should also make rapid investments in port infrastructure and defenses along Taiwan’s eastern seaboard in places such as Su’ao and Hualien harbors, which can serve as deepwater ports that are accessible, strategic, antiblockade strongpoints, and where any conceivable PLA blockade would be at its weakest and most vulnerable point logistically. Su’ao harbor, as a potential future homeport for Taiwan’s new indigenous Hai Kun-class diesel submarines, could also serve a dual purpose as an experimentation and development zone for public-private collaboration on unmanned-systems employment and operations. Infrastructure investments in East Coast ports could enhance the island’s ability to attain emergency resupply of energy, food, humanitarian supplies, and munitions under all conditions, broadening options for international community aid and complicating PLA efforts.

Fourth, every new capability needs trained operators who are empowered to employ and engage. This year Taiwan began implementation of a new, one-year conscript training system for male adults born after January 1, 2005 (up from a wholly inadequate four months of conscription in the past decade).⁹³ Taiwan’s “all-out defense” plan realigns into a frontline main battle force consisting of all-volunteer career military personnel, backed up by a standing garrison force composed mainly of conscripted military personnel guarding infrastructure, along with a civil defense system integrated with local governments and private-sector resources. Upon mobilization, there would also be a reserve force to supplement the main battle and garrison forces.

According to details laid out in its 2023 National Defense Report, Taiwan’s revamped one-year conscript system and reorganized reserve mobilization system place significant emphasis on traditional military combat skills, such as rifle marksmanship and operation of mortars.⁹⁴ However, in response to evolving security challenges and the changing nature of warfare, Taiwan’s military should incorporate greater training in emerging technologies and unconventional tactics, along with decentralized command and control, especially in the areas of drone warfare, where unmanned aerial vehicles and surface vessels play a crucial role in reconnaissance, surveillance, and targeted strikes. By integrating drone warfare training into the conscript system as well as in annual reserve call-up training, Taiwan can better prepare its military personnel to adapt to modern battlefield environments and effectively counter emerging threats.

Integrating drone operations into military operations down to the conscript and reservist level offers a cost-effective means to enhance battlefield situational awareness and operational capabilities, and also has the added benefit of enhancing the attractiveness and value of a mandatory conscription system emerging from years of low morale and characterized by Taiwan’s outgoing president as “insufficient” and “full of outmoded training.”⁹⁵ Recognizing the imperative to modernize military training to face up to a rapidly expanding PLA threat, Taiwan’s military force realignment plan came with a promise to “include training in the use of Stinger missiles, Javelin missiles, Kestrel rockets, drones, and other new types of weapons . . . in accordance with mission requirements to meet the needs of modern warfare.”⁹⁶ Looking at the example of Ukraine, where drones have been utilized, underscores the importance of incorporating drone warfare training into its asymmetric strategy.

The Taiwan Enhanced Resilience Act “prioritize[d] realistic training” by the United States, with Taiwan authorizing “an enduring rotational United States military presence that assists Taiwan in maintaining force readiness.”⁹⁷ There have been numerous reports of US special forces in Taiwan,⁹⁸ and those forces could provide training in tactical air control, dynamic targeting, urban warfare, and comparable capabilities.⁹⁹ Likewise, parts of an Army Security Force Assistance Brigade could do similar work on a rotational basis, on- or off-island.

To facilitate a comprehensive and integrated approach to defense planning and preparedness between the military, government agencies, and civilian organizations, Taiwan has also established the All-out Defense Mobilization Agency, which (as noted above) is a centralized body subordinate to the Ministry of National Defense that is tasked with coordinating efforts across various sectors, down to the local level, to enhance national defense readiness. That agency would be significantly more effective if raised to the national level with a broadened mandate as part of a comprehensive approach.

The Taiwanese leadership also should consider elevating their efforts to create a large-scale civil defense force, offering practical skills training which would appeal to Taiwanese willing to dedicate time and effort toward defense of their communities and localities. These skills could include emergency medical training, casualty evacuation, additive manufacturing, drone flying, and open-source intelligence. Private, nonprofit civil defense organizations such as Taiwan’s Kuma Academy hold widespread appeal to citizens seeking to enhance basic preparedness skills.¹⁰⁰ With a curriculum that covers topics ranging from basic first aid to cognitive warfare, Kuma Academy’s popular classes typically sell out within minutes of going online. According to a recent survey of domestic Taiwan opinions sponsored by Spirit of America, “When facing external threats, 75.3% of the people agree that Taiwanese citizens have an obligation to defend Taiwan.”¹⁰¹ A well-trained civil defense force and other whole-of-society resilience measures provide an additional layer of defense and enhance social cohesion to better deny Beijing’s ultimate political objective of subjugating the will of the people.

Defense resilience recommendations for Taiwan

Raise defense spending to at least 3 percent of GDP.
Adopt Ukraine’s model of grass-roots innovation in defense.
Focus a large portion of its defense budget on low-cost, highly effective systems including unmanned vehicles and naval mines.
Incorporate greater training in emerging technologies and unconventional tactics for conscripts and reserves.
Invest in East Coast port infrastructure as counterblockade strongholds.
Elevate the All-out Defense Mobilization Agency to the national level and implement a larger civil defense force that fully integrates civilian agencies and local governments.

Conclusion

On April 3, 2024, Taiwan was struck by the strongest earthquake in twenty-five years. In the face of this magnitude 7.4 quake, Taiwan’s response highlights the effectiveness of robust investment in stricter building codes, earthquake alert systems, and resilience policies, resulting in minimal casualties and low infrastructure damage.¹⁰² Taiwan’s precarious position on the seismically vulnerable Ring of Fire, a belt of volcanoes around the Pacific Ocean, mirrors its vulnerability under constant threat of military and gray zone aggression from a mainland China seeking seismic changes in geopolitical power. Drawing from its success in preparing for and mitigating the impact of natural disasters, Taiwan can apply a similarly proactive approach in its defense preparedness. Safeguarding Taiwan’s sovereignty and security requires investments in a comprehensive security strategy for resilience across society—including cybersecurity for critical infrastructures, bolstering energy security, and enhanced defense resilience. Such an approach would provide Taiwan the greatest likelihood of deterring or, if necessary, defeating PRC aggression including through blockade or kinetic conflict.

About the authors

Franklin D. Kramer is a distinguished fellow at the Atlantic Council and a member of its board. He is a former US assistant secretary of defense for international security affairs.

Philip Yu is a nonresident senior fellow in the Indo-Pacific Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security, and a retired US Navy rear admiral.

Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, a nonresident senior fellow in the Indo-Pacific Security Initiative at the Atlantic Council’s Scowcroft Center for Strategy and Security, and editor of the independent China-Russia Report.

Elizabeth “Beth” Sizeland is a nonresident senior fellow at the Scowcroft Strategy Initiative of the Atlantic Council’s Scowcroft Center for Strategy and Security. Earlier, she served in the United Kingdom’s government including as deputy national security adviser and as adviser to the UK prime minister on intelligence, security, and resilience issues.

This analysis reflects the personal opinions of the authors.

Acknowledgments

The authors would like to thank the following individuals for their helpful comments and feedback: Amber Lin, Elsie Hung, Kwangyin Liu, and Alison O’Neil.

Russia’s flagship international forum showcases Putin’s pariah status

Edward Verona — Fri, 21 Jun 2024 13:18:28 +0000

Not so long ago, the annual St. Petersburg International Economic Forum (SPIEF) was widely seen as one of the “be there or be square” events for the world’s business elites, political leaders, and global influencers. Often called Russia’s Davos, SPIEF takes place every June in Russia’s second city, which also happens to be Vladimir Putin’s hometown. Throughout Putin’s reign, it has served as a showcase for the country’s economic, scientific, and technological achievements.

For years, multinational corporations by the score would pay handsomely to be partners of the forum, and would invest heavily in state-of-the-art exhibition stands. Participation was by invitation only, with careful vetting of those who were to have, once inside the entrance gate, virtually unrestricted access to the senior Russian government officials, CEOs, and other notables in attendance. The evening social and entertainment agendas were replete with over-the-top extravaganzas featuring many of the luminaries of Russia’s cultural beau monde.

SPIEF was also seen as a measure of Russia’s standing in the world as an economic and geopolitical power, and a reflection of the esteem in which world leaders held Vladimir Putin. Typically, no less than half a dozen heads of state or government from the world’s most important industrial and emerging market economies would typically join Putin on stage during the keynote address.

Most VIP political guests at SPIEF were democratic leaders, reflecting a desire to embrace Russia as a new member of the democratic club, albeit one that did not yet fully abide by the rules. Some leaders of a more authoritarian hue would also attend, but diplomatic politesse ensured that everybody was well behaved. The long days and mild weather, combined with the undeniable beauty of St. Petersburg, created an upbeat atmosphere and friendly spirits. As one who attended five SPIEFs, I can attest to the enchantment of it all.

While the weather and the venue have remained the same, SPIEF has experienced a gradual and then abrupt decline in status over the past decade. This process first began in 2014 after the annexation of Crimea. It has accelerated dramatically following the full-scale invasion of Ukraine in 2022, and was all too evident in June 2024.

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Prior to 2014, SPIEF attendance had been regarded as more or less obligatory for the CEOs of all the largest international oil and gas companies. This year, however, the picture was strikingly different, with SPIEF attracting virtually no business leaders from G7 or EU member countries. Instead, there was only a relatively small contingent representing state-owned enterprises from other countries, mostly those that trade in sanctioned Russian oil and gas.

As far as can be gleaned from the official SPIEF website (personal attendance is now out of the question), the only partners and exhibitors at this year’s event were Russian companies, mostly state-owned or controlled. SPIEF claims to have attracted 21,200 participants, but this figure likely includes offsite events open to the public.

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The most striking thing about the 2024 SPIEF program was the absence of high-level international political participation. Indeed, it must have been particularly painful for Vladimir Putin to share a stage with the presidents of Bolivia and Zimbabwe. Having lived in Bolivia, I do not mean to disparage that beautiful country; nor do I harbor any ill will toward Zimbabwe. Nevertheless, there is no escaping the fact that Putin most certainly does not see those leaders as peers. Nor do they compare to the global heavyweights who traditionally participated in previous SPIEFs.

The only other “heads of government” in attendance in St. Petersburg this June were the leader of Georgia’s Russian-occupied Abkhazia region, and the head of Republika Srpska, a sub-national entity in Bosnia-Herzegovina. This underwhelming international guest list at Russia’s flagship annual economic forum speaks volumes about Putin’s pariah status.

The reasons for the absence of democratic leaders at SPIEF are obvious and require no further explanation. At the same time, it is interesting to note that numerous putative allies of Russia also gave the event a miss. Perhaps Chinese President Xi’s recent visit to the Shangri-La Conference in Singapore was too close in timing. Significantly, Iran chose not to send any senior officials. The leaders of Venezuela, Nicaragua, and Cuba similarly stayed away.

The absence of Syria’s Bashar al-Assad came as no surprise as he rarely travels. But what about Russia’s BRICS partners Brazil, South Africa, and India? Meanwhile, the most glaring absence of all was Belarusian dictator Alyaksandr Lukashenka. No other head of state is as personally indebted to Putin, who saved Lukashenka in 2020 after anti-regime protests erupted across Belarus following a sham presidential election.

Russia’s remaining partners are clearly in no hurry to engage in public demonstrations of support for Moscow. Nor can the Kremlin necessarily count on Putin’s fellow pariahs. If SPIEF is Russia’s showcase, then the glass evidently needs a thorough cleaning.

Edward Verona is a nonresident senior fellow at the Atlantic Council’s Eurasia Center covering Russia, Ukraine, and Eastern Europe, with a particular focus on Ukrainian reconstruction aid.

Mexico features prominently in US ambitions to “nearshore,” whereby companies move their production facilities closer to home and away from far-flung industrial hubs—mainly China. This shift is influenced by the United States’ drive to build more resilient supply chains in the wake of the COVID-19 pandemic and heightened geopolitical competition with China.

Cross-border economic ties under the United States-Mexico-Canada (USMCA) free trade zone are growing. The United States and Mexico are now each other’s largest trading partner. This can be attributed to many factors, including a deteriorating trade relationship between the United States and China, which reinforces the argument for nearshoring.

Mexico presents a supply chain opportunity for the United States. But from the Mexican perspective, support for nearshoring is relatively subdued. The “national project” of AMLO and Sheinbaum’s Morena party emphasizes combatting inequality including by developing the country’s south and strengthening state-owned companies. By contrast, the bulk of nearshoring investments would be made by private companies and go toward Mexico’s industrialized north, along the US border. Perhaps as a result, nearshoring has not progressed as rapidly as many predicted. US investors will need to align with Sheinbaum’s agenda to build a Mexican energy system capable of turning nearshoring into a reality.

Is nearshoring even happening?

A closer look at investment data paints a mixed picture of nearshoring. On one hand, foreign direct investment (FDI) in Mexico—the only measure of whether investment in the country is rising—reached a record $20.3 billion in the first quarter (Q1) of 2024, a 9 percent increase over Q1 2023. Fifty-two percent of total FDI in Mexico originated from the United States. On the other hand, only 3 percent of this increase can be attributed to new investments, contradicting the narrative that large-scale nearshoring is occurring. Furthermore, manufacturing as a share of Mexico’s economy grew to only 21 percent in the first half of 2023, from a pre-pandemic level of 20 percent. Tesla, which in March 2023 announced one of the largest nearshoring projects, has yet to break ground on its facility in Nuevo León. Like other investors, Tesla has encountered rising costs and logistical challenges.

Grid constrains are stifling nearshoring

Nearshoring is being limited by structural issues faced by Mexico’s electricity sector. Mexico’s grid has struggled to keep up with rising demand. The country suffers an “energy deficit,” facing difficulty connecting new manufacturing plants to the grid and—by extension—to renewable energy sources. The latter is a potential sticking point for electric vehicle producers looking to relocate to Mexico such as Tesla, GM, and Ford. The Mexican Association of Private Industrial Parks notes that this issue has postponed some projects and has throttled nearshoring in the years since the pandemic.

Is Mexico’s electricity sector a constraint?

The fragility of Mexico’s grid presents another major nearshoring obstacle. This was made clear in early May 2024 when the electricity demand on the grid nearly exceeded the total available generating capacity, leading the national electric system operator, CENACE, to declare a state of emergency. It has been reported that much of this demand can be attributed to the rising use of air conditioning and electric cooling during a record-breaking, weeks-long heatwave. As Mexico gets hotter courtesy of climate change, demand for cooling technologies—particularly for industrial processes—is set to rise.

Mexico’s electricity sector needs to shape up to meet increased demand from nearshoring.

More competition is needed—US investors can help

Mexico’s electricity sector offers a promising path for the United States to align its nearshoring objectives with Sheinbaum’s agenda. But to do so, it must benefit state-owned companies and free up state funds for social programs aimed at reducing inequality.

Increased private sector participation in the electricity sector is a necessity for achieving greater capacity and connectivity to unlock nearshoring. One analysis from the National Autonomous University of Mexico argues that increasing private sector participation in the electricity sector would not displace the state-owned electricity company CFE, which controls 40 percent of Mexico’s electric generation capacity, produces 70 percent of its power with private partners, and controls the full transmission and distribution network of the national grid.

In fact, CFE could benefit from increased industrial demand driven by nearshoring. Increasing private sector involvement in power generation can even help CFE by freeing it to investment in other areas, such as upgrading its transmission and distribution network and strengthening its balance sheet in the long term.

New president, new opportunities

AMLO has tried to strengthen CFE by passing a measure in 2021 to discriminate against private sector electricity generation and negate the 2013 Electricity Industry Law, which was designed to promote competition in the sector. Although the measure has since been overturned by the Supreme Court, the administration has effectively halted new public auctions for independent power contracts, preventing growth in private sector investment. Despite this, the private sector drove the increase in solar and wind power from 2014-2020.

Reversing course on private investment will be critical to restoring and expanding the capacity of the electric system and lowering costs. In 2019, independent power producers generated electricity 35 percent cheaper than CFE.

Sheinbaum’s election may present an opportunity for greater private sector collaboration with the United States. Facilitating investment can both strengthen Mexico’s grid and bolster the Mexican state, outcomes that are in line with Morena’s socioeconomic justice goals. While Sheinbaum will likely continue to favor state-owned companies, the Wall Street Journal reports that she also aims to “attract billions of dollars in private investment for solar and wind farms, with the government keeping control and a majority share in the electricity market,” citing a close advisor to Sheinbaum.

How the US-Mexico partnership can boost nearshoring and the electricity sector

The United States should seize the opportunity to work with the incoming Sheinbaum administration to strengthen the Mexican energy sector, thereby enabling supply chain security gains through nearshoring. The relationship should uphold the mutually beneficial tenets of the USMCA, including its level playing field for private sector investment.

In addition, the United States should redouble its technical and regulatory cooperation efforts with Mexican electricity regulators as has been conducted through the U.S. National Renewable Energy Laboratory (NREL). The aim of this partnership should be to work toward goals which benefit the Mexican administration’s agenda while strengthening economic ties and boosting Mexico’s manufacturing potential.

US-Mexico cooperation on electricity sector regulation can facilitate private sector investment in generation that could decrease the burden on CFE as the sole entity responsible for expanding the grid. Ceding greater financing responsibility to the private sector—with CENACE retaining control of the national electric system—could enable CFE to expand its business alongside the private sector and permit the Mexican state to focus on investments that promote increased prosperity for all its citizens.

With higher private sector participation conducted in a manner that respects the central role state-owned companies play in Mexican society, the electricity sector in Mexico can be transformed into an enabler of the nearshoring trend.

William Tobin is an assistant director with the Atlantic Council Global Energy Center.

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Turkey signed two major deals with Somalia. Will it be able to implement them?

Kiran Baez — Tue, 18 Jun 2024 16:56:08 +0000

On June 17, Somali President Hassan Sheikh Mohamud met with Turkish Foreign Minister Hakan Fidan in Ankara. It was the fourth high-level meeting between the two countries this year, and the pace of dialogue between Somalia and Turkey is set to increase, following two major agreements between Turkey and Somalia signed earlier this year—a comprehensive maritime and defense agreement signed in February and an oil and gas cooperation deal reached in March.

These agreements have drawn attention to Ankara’s presence in the Horn of Africa and build upon a long history of Turkish engagement in the region. They hold great potential for expanding the security and economic benefits of Turkey-Somalia cooperation, but implementing them will not be easy. Great-power competition over influence in Mogadishu, regional rivalries, security challenges, and a fractured Somali government will all pose significant challenges to these agreements and Turkey’s bid for a greater role in the Horn of Africa.

What’s the big deal?

On February 22, Ankara and Mogadishu signed a memorandum of understanding (MOU) establishing the Turkish Armed Forces as a partner in Somalia’s maritime security and law enforcement for the next ten years. Per reports about the MOU, Turkey will reconstruct, equip, and train the Somali Navy while receiving 30 percent of the revenue from Somalia’s exclusive economic zone. Proponents say that the stability and security brought to Somalia’s seas outweigh the costs. Somalia loses $500 million dollars annually to illegal fishing, for example to Iranian and Chinese fishermen, while Somalia’s oil and gas reserves of up to thirty billion barrels remain largely untapped since civil war broke out in 1991. A brief period of stability has led oil and gas companies to cautiously return to Somalia. In 2019, ExxonMobil and Shell indicated a potential return to the country, and in 2022, Coastline Exploration struck a seven-block exploration deal, though an increase in fighting once again prevented any major steps forward. Shortly following this agreement with Turkey, Liberty Petroleum announced that it had secured three offshore blocks for exploration.

Shortly after reaching the maritime defense and security deal, Ankara and Mogadishu announced another MOU, establishing Turkey as a partner in Somalia’s exploration, appraisal, and extraction of petroleum blocks, with the possibility of Turkey taking over sales and distribution. Though the first agreement of its kind for Turkey, Ankara is increasingly factoring hydrocarbons into its diplomatic efforts, including in Libya.

Guns and roses

Turkey’s reaching out to Somalia has been in the making for nearly two decades, though then Turkish Prime Minister (and current president) Recep Tayyip Erdoğan’s visit to Somalia during a devastating famine in 2011 was the watershed moment. The first non-African head of state to visit Somalia in twenty years, Erdoğan toured refugee camps and hospitals, pledging aid and drawing international attention to the crisis. His visit was warmly received by the Somali people, many of whom felt abandoned by the global community.

In the years since Erdoğan’s visit, Turkey has integrated deeply into Somali affairs, in everything from its security to its garbage collection and wastewater treatment to its management of seaports and airports. According to Erdoğan, Turkey provided more than one billion dollars in aid to Somalia between 2011 and 2022. Though Turkey’s presence has not been entirely without controversy, evidence of its popularity is widespread, whether through popular fundraising efforts for Turkish earthquake relief in 2023 or in day-to-day life—“Istanbul” is now a common girl’s name in Somalia.

Turkey receives major attention for the aid it provides, especially considering that it is in the middle on the list of providers of official direct aid to Somalia. This is likely because of Turkey’s tendency to heavily brand its projects, its willingness to operate in dangerous areas of the country, and the close political ties between the two countries. The Turks often capitalize on shared cultural and religious ties to legitimize and optimize their operations, while the Turkish Directorate of Religious Affairs (also known as the Diyanet) facilitates some projects.

At the heart of the Turkey-Somalia relationship is military cooperation, which began in 2015. In 2017, Turkey established its first African military base, Camp TURKSOM in Mogadishu, and it has reportedly trained up to sixteen thousand troops. Alongside the United States, Turkey has conducted drone strikes against the terrorist group al-Shabaab, with at least nineteen confirmed strikes since 2022. In April 2023, Ankara sold Bayraktar TB2 drones to Mogadishu as part of counterterrorism efforts (a sale for which the United Nations accused Ankara of violating an arms embargo). Turkey also plays an important role in training and arming the Haramcad paramilitary unit and Gorgor commando brigade— one of two major elite units in the Somali National Army (SNA), with the other being the Danab brigade, which is trained by the United States. In collaboration with the Danab brigade, the Gorgor has played an important role in combatting al-Shabaab, particularly in renewed fighting in 2021 and 2022.

Turkey turns southward

Ankara’s presence in Somalia is part of a Turkish push toward Africa that started in 1998, with the creation of the Africa Action Plan. By 2008, Turkey had been declared a strategic partner of the African Union and opened at least a dozen embassies across the continent. When Turkey made its successful bid to become a nonpermanent member of the United Nations Security Council in 2009, it was supported by fifty-one of the fifty-three African states. In 2013, Turkey became a member of the African Development Bank Group. Turkey has varying interests in Africa, including ideological motivations, economic and trade priorities, and a desire to build up Ankara’s own defense industries and capabilities. Now, Turkey has a large presence in the region in the areas of humanitarian aid and military cooperation. As of 2022, some thirty African states had signed security cooperation agreements with Turkey, nineteen of which included troop training.

The Horn of Africa is critical for Turkish interests because of its its geographical position, rich mineral resources, and development potential. The region has seen increasing great-power competition involving a diverse cast of characters including Iran, the United Arab Emirates (UAE), Russia, China, and the United States. Since 2001, at least eighteen foreign military bases have been constructed in the region, primarily for counterterrorism and counterpiracy operations.

Over the past two decades, Ankara has developed a complex web of economic and military ties with the region, including by leasing the Sudanese island of Suakin, selling drones to Ethiopia, and participating in a decades-long anti-piracy mission off the Horn of Africa under NATO’s Combined Task Force 151. In 2017, Djiboutian officials invited Turkey to establish a military base near the critical Bab el-Mandeb Strait in an effort to promote freedom of navigation and regional stability. On February 20 this year, Djibouti and Turkey signed a military training cooperation agreement.

The Emirati angle

Turkey is far from the only power involved in Somalia. As recently as mid-February, Mogadishu signed an MOU with Washington to open five new military bases in the country and increase training for its Danab brigade. Qatar and the United Kingdom are also players in Somalia. Turkey’s primary competitor in Somalia, however, is the UAE, which has historically seen the region as critical to its strategic interests.

Flush with cash, the Emiratis have embarked on a campaign of infrastructure projects and security agreements across the region, including building major ports in Somaliland (an unrecognized republic in the north of Somalia that self-declared independence in 1991), Eritrea, and Djibouti. It also armed the Rapid Support Forces (RSF) of Sudan and the Ethiopian government during conflicts in those countries. In November 2022, according to Middle East Eye, Somalia reportedly signed a secretive deal with the UAE to train ten thousand Somali troops and police officers in Egypt. However, frustration among officials with the terms of the agreement, as well as continued Emirati projects in Somaliland, have complicated the UAE-Somalia relationship. On January 1, Ethiopia (also close with the UAE) announced it had reached an MOU with Somaliland exchanging recognition for sea access and the lease of a military base. Following the two major Turkey-Somalia agreements of 2024, the Emiratis severely cut their support for the SNA, which included providing an additional $256 in monthly salary for the 14,400 soldiers trained by the UAE.

The Emirati factor carries two major risks for Turkish ambitions in Somalia. First, Abu Dhabi has played a critical role in the fight against al-Shabaab, including through air strikes. Manpower shortages have plagued the SNA for decades, an issue that Emirati coffers have helped alleviate. The withdrawal or reduction of Emirati support in the fight against terrorism will have a compounding effect as the African Union’s Transition Mission in Somalia (ATMIS), abiding by a request from Somalia, plans to withdraw its forces by the end of 2024. The withdrawal of both ATMIS and the UAE risks Turkey becoming further burdened by the region’s fight against terrorist groups. Second, the UAE has faced several setbacks across the region as the number of players continues to grow, and its attempts to reinforce its position will create effects that will impact Turkey. The UAE is entering increasing competition with China in Djibouti, especially now that Djibouti’s government nationalized the Doraleh Deep Water Port, which was previously owned by an Emirati company; meanwhile, in Sudan, the Emirati-backed RSF has seen its first major setbacks in months with the loss of Omdurman to the Sudanese Armed Forces, who have purchased weapons from Iran. As the UAE seeks to reassert itself and reinforce its position in the region, it will likely double down on its already substantial investments in Puntland, Somaliland, and Ethiopia. Whether the emboldening of Somalia’s rivals and the geopolitical balancing in the Horn will have a stabilizing or destabilizing effect remains to be seen, but it will likely be closely watched by Turkey.

Known unknowns

Though Somali and Turkish officials maintain that the recent agreements are unrelated to the major deal between Somaliland and Ethiopia, the timing is difficult to ignore. The Somali cabinet labeled the Somaliland-Ethiopia MOU as a “blatant assault” on its sovereignty and said it was an example of Ethiopian “interference against the sovereignty of [Somalia].” Unsurprisingly, Somalilanders reacted similarly to the Turkey-Somalia agreements that followed. Though the regional backlash to the MOU may in part steer Ethiopia and Somalia to dissolve it, this is far from certain. It remains unknown if Turkey’s enforcement of Somali maritime security will extend to Somaliland waters, which Ankara recognizes as part of Somalia. In May, Somaliland’s foreign minister explicitly stated that Turkish naval vessels would not be welcome in its territorial waters. This issue will be particularly important if Ethiopia proceeds with its plans to build a naval facility in Somaliland. Despite a strong Turkish-Ethiopian relationship, the Turkish Navy supported joint Somalia-Egypt naval exercises days after the January 1 agreement was signed. It is also unclear how the Turkish Navy will interact with the Puntland Maritime Police Force, which has received funding support from the UAE. Though the semi-autonomous Somali region of Puntland does not claim total independence, it pulled recognition of the Somali federal government in March.

Equally uncertain is how Ankara will react should the Houthis attack a ship transiting through the Somali waters that it will be charged with protecting. Handcuffed by the group’s connection to the war in Gaza, Turkey has balanced a precarious relationship with the extremist group, quietly opposing them over the last seven years while refusing to label them a terrorist organization and shying away from joining the US-led Operation Prosperity Guardian.

A winding path forward

It is uncertain how Turkey and Somalia will deliver on the major agreements and continue the upward trajectory in their bilateral relations. Turkey faces a complex and challenging Somali political landscape. Both MOUs were quickly ratified by the Somali parliament (members perhaps had little choice in the matter, according to one Somaliland-based researcher), though the deal is not without detractors. Beyond concerns over sovereignty, Mohamud is in need of an influential patron as he faces allegations of consolidating power. For Mohamud, Turkey may be the answer, as Turkey largely disregards Somalia’s domestic politics and offers near unconditional support for Villa Somalia, which has led some analysts to describe Turkey as an “all-weather friend.” Mohamud recently proposed a series of constitutional changes, including transitioning to a presidential system, arguing that it would combat clan politics and unite the country. The reforms have prompted protests and polarized the parliament. The Puntland region declared on March 31 that it would be withdrawing from the federal government until a new constitution was put in place. Days later, the Daily Somalia reported that Puntland President Said Abdullahi Deni traveled to the UAE and Ethiopia.

Furthermore, Mohamud’s government lacks unity. The same day that the Liberty Petroleum deal was signed by Somali Minister of Petroleum and Mineral Resources Abdirizak Omar Mohamed, Somali Prime Minister Hamza Abdi Barre expressed concerns and called for revoking the deal. Similarly, the Somali government lacks a clear strategy toward al-Shabaab. Following a successful first phase of “total war” in 2022, both battlefield and political gains have slowed, and al-Shabaab has struck back with a series of horrific attacks. Barre declared his support for peace talks with al-Shabaab in direct opposition to Mohamud, garnering public and private support from within a fractured cabinet.

Moreover, the recent battlefield gains by al-Shabaab undermine the legitimacy of Turkey’s military presence in the country. The concessions required for a peaceful settlement with the terrorist group may include ejecting Turkey’s military, the presence of which al-Shabaab has condemned harshly.

As Turkish officials and lawmakers consider ratification and implementation, they will no doubt look to the past decades of Turkish engagement with Somalia—but also the challenges that lay ahead. The difficulties posed by external influences, great-power competition, tumultuous domestic politics, widespread corruption, high costs, and continued conflict in Somalia will make Turkey’s enormous promises extremely difficult to fulfill. The future of these agreements and thus the future of Turkey’s relations with Somalia and position in the Horn of Africa, though built upon a strong foundation, remains to be seen.

Kiran Baez is a young global professional at the Atlantic Council Turkey program. Add him on LinkedIn.

The views expressed in TURKEYSource are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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Ukraine’s recovery cannot begin without enhanced air defenses

Edward Verona — Tue, 18 Jun 2024 09:50:48 +0000

“United in defense, united in recovery, stronger together,” was a key slogan at the 2024 Ukraine Recovery Conference (URC) held in Berlin on June 11-12. It is an apt summation of Ukraine’s aspirations as it copes with the unprecedented destruction of approximately half of the country’s electric power and district heating capacity by targeted Russian missile attacks.

Without adequate air defenses it is futile to build new fixed capacity; without adequate power and heating, the prospects for Ukraine’s economic recovery are gloomy. While severe already, this problem will become critical in the coming winter months.

From Ukrainian President Volodymyr Zelenskyy, who spoke at the opening session, to Ihor Terekhov, mayor of the beleaguered front line city of Kharkiv, the message was driven home: Air defense and electric power are inextricably intertwined, and both are desperately needed.

Ukraine’s partners appear to recognize the urgency of the situation. German Chancellor Olaf Sholz used the conference to announce that Germany will provide Ukraine with additional IRIS-T and Gepard air defense batteries. Italy confirmed plans to deliver another SAMP/T anti-missile battery. Just hours after the conference, Washington announced that it will be sending another Patriot anti-missile system to Ukraine.

This was certainly welcome news for Kyiv. However, the breadth and intensity of Russia’s attacks will require many more such deliverables to provide some assurance of the survivability of any new or rebuilt power plants.

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Another takeaway from the URC was the role of private sector investment in Ukraine’s recovery. Speaking at the conference, an IFC representative said the ratio of private sector investment to official funding for Ukraine’s reconstruction should be seven-to-one. As was acknowledged by many speakers, including US Special Representative for Ukraine Reconstruction Penny Pritzker, this will not be feasible without affordably priced political and war risk insurance, along with export credit guarantees backed by foreign governments.

Here, too, the message seems to have reached Western capitals. The US Development Finance Corporation (DFC) announced a $300 million expansion of political risk coverage on top of the more than $1 billion of coverage already extended both prior to and since the full-scale invasion. The European Investment Bank (EIB) announced a new $1 billion lending facility, while the EBRD unveiled a planned $700 million credit for Ukrenergo on top of a total loan portfolio of $4.2 billion, and the IFC confirmed a total of $1.4 billion invested in Ukraine since the invasion.

The export credit agencies of Denmark, Germany, Japan, and Poland all reported substantial coverage and very low default rates. Nevertheless, Rostislav Shurma, Energy Advisor to the President of Ukraine, cited continuing impediments to lending and insurance coverage. These include high pricing, short maturities, lending caps, and less than one hundred percent coverage.

Eurasia Center events

András Simonyi: Will the EU elections slow its energy transition?

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

The Berlin conference addressed a wide range of additional topics related to the idea of Ukraine’s reconstruction. Representatives of local and regional governments, civil society, and the private sector were active participants in the many lively sessions. Attendance was more than 1500, with the plenary session standing room only for those who dawdled on the way in (this writer included).

The atmosphere in the breakout sessions was akin to a revival meeting, with frequent applause and eager participation from audience members. The photographs and displays lining the corridors dramatically illustrated the human tragedy of Russia’s brutal invasion, the resilience of the Ukrainian people, and their determined defense of their country.

Still, the question remains whether the measures announced in Berlin will be enough to launch a sustainable recovery. They are a good start, and show a steady increase since the 2022 and 2023 URC events, but significant challenges remain.

Many speakers referred to frozen Russian Central Bank reserves and other Russian assets, with Ukrainians urging Western governments to allow these funds to be used for Ukraine’s reconstruction. The $300 billion plus this represents would go a long way toward rebuilding much of Ukraine’s damaged and destroyed infrastructure. Unfortunately, there was no sign from Western government officials at the Berlin URC that their governments are quite ready to take that step. However, the issue remains very much on the agenda, with progress possible before the 2025 URC, to be hosted by Italy.

Edward Verona is a nonresident senior fellow at the Atlantic Council’s Eurasia Center covering Russia, Ukraine, and Eastern Europe, with a particular focus on Ukrainian reconstruction aid.

Khakova quoted in BBC The World at One on Ukraine’s energy infrastructure

lbowen — Sat, 15 Jun 2024 17:38:02 +0000

ORIGINAL SOURCE

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Will the new Parliament change Europe’s course on energy security and climate?

András Simonyi, Olga Khakova, Pau Ruiz Guix, Andrei Covatariu, and Elena Benaim — Fri, 14 Jun 2024 19:29:18 +0000

The last European Parliament governed as Europe’s energy system withstood unprecedent shocks to global markets and the economy. The shocks were numerous and severe: from negative pricing during the COVID-19 pandemic to all time-high energy costs following Putin’s full-scale invasion of Ukraine; from tensions in the Middle East and cyber and kinetic attacks on energy infrastructure to extreme weather events made more severe by climate change.

While energy was not the driving issue for the majority of the 185 million European voters for this election, the newly elected Parliament will play an important role in determining how to defend the bloc’s energy security, reduce emissions, and boost competitiveness.

Our experts weigh in on the impact of Europe’s elections on these issues.

Click to jump to an expert analysis:

Pau Ruiz Guix: How the EU can stay the course on clean energy goals

Andrei Covatariu: EU elections put climate, energy security, and political capital at risk

Elena Benaim: EU climate and energy agenda hangs in the balance

STAY CONNECTED

Will the EU elections slow its energy transition?

Five years ago, the European Commission under President Ursula von der Leyen set out to make the green transition its top priority. What comes next for the EU’s climate and energy agenda is uncertain. The Parliament’s new composition, and, perhaps even more importantly, the final choice of Commission president (which is up in the air) and members of the Commission, along with the distribution of portfolios, will be reflective of but also critical to the future direction of the EU.

While the gains of the extreme right are mainly a result of the migration crisis, the huge losses suffered by the Greens, plus the economic and political costs of the energy transition, need to be taken into account. These indicate a strong push to “rebalance” green transition and energy security.

Europe’s competitiveness has thus been added to climate and security/energy security concerns—for some member states, it is the number-one priority. Besides the geopolitical realities, as we warned years ago, the “absorption” capacity of European societies increasingly determines the speed with which the green transition can move forward.

There is an overwhelming view that now the next Commission will have to focus on the implementation of previous decisions. There are clearly two competing political trends, however. One aims to speed up the green transition as a panacea to all the issues mentioned above. The other takes a more pragmatic and realistic position to continue the transition, while taking into account the security, cost, and social aspects of that transition.

No matter what, energy security will take center stage. This means that US liquefied natural gas (LNG) will continue to play a major role, particularly as the majority view in Europe is that it will not go back to the status quo ante with Russian energy supplies.

András Simonyi is the former Hungarian ambassador to the United States and a nonresident senior fellow with the Atlantic Council Global Energy Center.

How the EU can stay the course on clean energy goals

The European elections results reflect a sentiment that has already been increasingly apparent: a need to align ambitious climate policy with a competitiveness and resilience agenda that delivers growth and economic security. While the reality of European policymaking means that a clearer picture will only emerge when new leadership is at the helm of the European Commission, the next five years will be all about implementing already-adopted regulation to reduce European greenhouse gas emissions by 55 percent by 2030.

To deliver on deep decarbonization goals, EU countries will need to implement targets to decarbonize hydrogen production at a time when carbon pricing will be extended, and the Carbon Border Adjustment Mechanism will be implemented and potentially expanded.

To deliver on domestic clean technology manufacturing goals, the new European leadership may opt to accelerate a trend toward re-shoring and friend-shoring, requiring new instruments, partnerships, and relationships within the multilateral trade system.

To deliver on clean hydrogen deployment goals, a sector where final investment decisions (FIDs) are struggling to take off, the new mandate should finalize low-carbon hydrogen rules and revise clean hydrogen rules reflecting what works and what doesn’t.

Achieving these three broad goals, which inevitably tackle global and trade-exposed sectors, will require strong climate and energy diplomacy that strengthens global cooperation on increased decarbonization of hard-to-abate industries, supply chain security, and regulatory alignment and certification. The US position and transatlantic cooperation will play a key role in achieving these objectives, and, therefore, not only European elections but American ones in November will inform and influence the realm of possibilities.

All in all, a world of different speeds in the energy transition is a challenging place, and the European experience shows that only by working together is it possible to balance climate, economic, and security objectives to the benefit of the people and the planet.

Pau Ruiz Guix is a trade and international relations officer with Hydrogen Europe.

EU elections put climate, energy security, and political capital at risk

In 2022, after Russia’s full-scale invasion of Ukraine, the European Commission set ambitious energy and climate targets to a significant extent aimed at minimizing social unrest and maintaining political stability in the European Parliament for the 2024 elections. This strategy largely succeeded, with the 2019 political coalition still holding a majority—albeit a narrow one— while public protests have been managed over the last years.

However, overambitious targets may soon backfire. As Commission President Ursula von der Leyen works to secure a strong coalition (which could include the Greens), some of the energy and climate objectives are at risk. Revising the approved 2030 targets is complex and politically risky with a right-leaning European Parliament. This could slow the transition pace, possibly enhancing short-term energy security but undermining long-term climate goals and supply security.

An alternative would be to maintain the existing targets, but this approach would also risk leaving goals unmet. This outcome could hurt energy security and political credibility, especially as the deadline for meeting targets falls right after the five-year term of the newly elected European Commission. Failing to meet the targets could erode the credibility of the leaders who will be in power at the end of this decade.

Looking beyond 2030, negotiations over the unapproved 2040 EU energy and climate targets pose even greater challenges than before, thus creating yet another significant political risk. Additionally, the EU enlargement process may also become less ambitious, which will only continue to generate spillover effects. Prospective countries would remain easily targeted by Russia with physical attacks on critical infrastructure, cyberattacks, or energy supply cuts, which will continue to hurt EU member states.

Andrei Covatariu is senior research associate at Energy Policy Group (EPG) and a research fellow at the Centre on Regulation in Europe (CERRE). This article reflects his own personal opinion.

EU climate and energy agenda hangs in the balance

On June 6, 2024, when called upon to vote for the European Parliament, European voters kept the center-right European People’s Party (EPP) as the leading group with 190 seats—a slight increase compared to the previous elections. However, to hold the majority, which requires 361 seats out of 720, the EPP will need to find working coalitions with other groups to pass legislation.

As announced by the EPP, European Commission President Ursula von der Leyen will again be their candidate for the presidency. With a second mandate, von der Leyen would be expected to protect the Commission’s legacy (including its key initiatives such as Fit for 55 and RePower EU) and to continue focusing on competitiveness, cleantech, innovation, global leadership, and energy resilience. However, coalitions in the European Parliament will heavily determine the direction of climate and energy policies.

With a majority formed by the EPP, Progressive Alliance of Socialists and Democrats (S&D), Renew Europe, and the Greens, the European Green Deal could be safe in terms of ambitions and targets. The coalition would probably maintain a decarbonization agenda strongly focused on energy security and industrial competitiveness and a likely dominant conversation around the social dimension of the energy transition.

With a majority that includes the hard-right group European Conservatives and Reformists (ECR), there could be a serious risk of seeing climate ambition weakened. Right-wing parties in member states have openly criticized Europe’s climate ambition, and this could result in undermining the provisions of the Fit for 55 plan. It might also complicate the already challenging discussion on unlocking investments for the green transition at the EU level.

A move to the right by the EPP would have severe implications for the legacy that the previous Commission built and hinder the possibility for the EU to build a strong industrial competitiveness strategy that supports the energy transition and climate targets.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

EnergySource

MEET THE AUTHOR

Fellow

András Simonyi

Energy & Environment Europe & Eurasia

Staff

Olga Khakova

Geopolitics & Energy Security Europe & Eurasia

Fellow

Elena Benaim

Nonresident Fellow

Energy & Environment

OUR WORK

Introduction
Section 1: Summary of damages and the economic and financial situation
Section 2: First steps toward building a reconstruction strategy
Section 3: Steps to create a reconstruction-friendly ecosystem
Section 4: The best opportunities for each economic sector
Summary of recommendations
Conclusion

The post Will the new Parliament change Europe’s course on energy security and climate? appeared first on Atlantic Council.

Reconstructing Ukraine at war: The journey to prosperity starts now

John E. Herbst, Olga Khakova, Charles Lichfield — Fri, 07 Jun 2024 12:30:00 +0000

WATCH THE LAUNCH

Public Event Fri, June 7, 2024 • 8:45 am ET

After Berlin: Tangible strategies for reconstruction following the 2024 Ukraine Recovery Conference

Please join the Atlantic Council’s GeoEconomics, Global Energy, and Eurasia Centers for the launch of their new report, Reconstructing Ukraine at war: The journey to prosperity starts now.

Economy & Business Energy & Environment Europe & Eurasia Geopolitics & Energy Security

Introduction

Rebuilding the Ukrainian economy after years of war will be a monumental task that the country’s allies and partners know they must assist. Helping Ukraine to prosper should be just as big a priority for those who believe Ukraine’s victory is key to preventing further Russian aggression and sending a cautionary message to other autocrats around the world. While rarely dismissed out of hand, the reconstruction is intuitively seen by many in the West as secondary to the need to help Ukraine fight back against aggression. This is understandable, but neglects how reviving the Ukrainian economy—and the government’s cash flow—also helps the war effort through additional funds, resources, and motivation.

The Ukrainian government is staffed by clever, innovative experts capable of expressing a clear vision of how to reach prosperity. But when the Atlantic Council’s Global Energy Center and GeoEconomics Center embarked on a weeklong research trip in February 2024 to meet them, Kyiv faced cash-flow problems and high uncertainty over future macrofinancial assistance, especially from the United States.

The situation has since improved, not least thanks to the US supplemental spending law that includes $10 billion of budgetary support—but it’s imperative that the West does not create doubts about its support for Ukraine again in 2025. The macrofinancial assistance meant to keep Ukraine’s government functioning cannot finance the recovery as well. In addition to central government funds, a myriad of Western grants and loans need to be tied to individual projects. The innovative systems designed to implement this are up and running but not always used to their full potential.

This report provides a snapshot of the economic, societal, and energy-security situation on the ground, capturing key challenges and opportunities for supporting Ukraine’s survival and building a more prosperous future. It also explores how the country can meaningfully contribute to Europe’s economic growth and strategic autonomy at large through innovation, energy security, decarbonization, and diversified supply chains. While the situation is changing daily, these key takeaways will remain pertinent to reconstruction discussions for the foreseeable future.

Our research is based on more than thirty meetings in Kyiv in February 2024. These included meetings with the most senior levels of the ministries in charge of reconstruction, influential think tanks, Western embassies, legislators in the Rada, journalists, and business leaders. These meetings were conducted under the Chatham House Rule. Our trip was followed by additional visits to Ukraine by the Atlantic Council Eurasia Center in February and March. With further research and follow-up discussions with experts, we have summarized our analysis in this recommendations-focused Atlantic Council report.

Section 1: Summary of damages and the economic and financial situation

Taking stock of unexpected wins and measuring sobering losses

Moscow’s relentless assault has caused immeasurable humanitarian suffering and damage to Ukraine’s infrastructure and natural environment. Since the Russian Federation’s 2022 invasion of Ukraine, more than 14.6 million Ukrainians, or a third or more of the population, have fled their homes at some point during the war, according to the International Organization for Migration (part of the United Nations system); 6.5 million refugees fled Ukraine, and 3.7 million are still displaced within the country. By February 2024, at least thirty-one thousand Ukrainian troops and tens of thousands of civilians have died for reasons related to the war. And while the Ukrainian army succeeded in pushing the Russian aggressor far back in 2022, physical damage is by no means limited to the front line. As of February 2024, 156,000 square kilometers (km) in liberated territories and along the active front have been contaminated with mines, which were rarely used before this full-scale invasion. The June 2023 destruction of the Kakhovka dam caused $14 billion in damage and loss, submerged at least 620 square km of territory under Ukrainian control, and damaged ecosystems even further afield. Russia’s air campaigns continue to target the whole country, undermining both the economic recovery and morale.

Targeting energy infrastructure has been one of Russia’s most pernicious and persistent tactics to cause harm to millions at once and multiply the cost of reconstruction. With over $10 billion in damage to date, these attacks have hindered access to basic human necessities, such as potable water and heating. The international donor community has consistently helped Ukraine with repairing the damage, which was mostly focused on energy generation capacity and transmission in the winter of 2022 and 2023. Thanks to robust international support and the courage and dedication of energy-sector employees, Ukraine survived these horrific months, restoring over 2.2 gigawatts (GW) of installed capacities. Unfortunately, worse was on the horizon. The Kremlin escalated its critical infrastructure destruction starting in March 2024 by bombing Ukraine’s biggest thermal power plants: the heart of generating capacity for the largest population hubs. Delays in military support hamstrung Kyiv’s high-precision defense capabilities, leaving million-dollar power plants exposed to Russia’s hybrid attacks. During the spring of 2024, Ukraine lost 9 GW of generation capacity, which is equivalent to 22 million photovoltaic (PV) panels, or power for 7 million households.

This leaves Ukraine with expensive solutions and a tough journey ahead. The country is left to purchase electricity imports from European neighbors, which are more costly than what it could have produced at home and leads to higher fees due to the oversubscribed transmission capacity. It costs around $0.20 per kilowatt-hour to produce electricity in Ukraine. Households paid a fraction of this after subsidies, which are being incrementally reduced in an effort to bring in additional funding to repair the damages, resulting in $0.107 per kilowatt-hour cost to consumers until April 30, 2025. At the same time, Ukraine and its allies are racing to secure gas turbines for energy generation and balancing needs, as well as parts to repair power plants. Cities are already experiencing blackouts, which will be more frequent when the heat-driven peak summer demand overloads the grids. Ukraine will need a mix of budgetary support, equipment transfers, and technical assistance to survive this winter, which promises to be the most challenging since the full-scale invasion.

Domestic energy availability in Ukraine: 2022-2024

Power plants destroyed in Ukraine as of April 2024

Source: Available data collected by DiXi Group through the following references; Atlantic Council mapping:

Efforts to quantify overall damages systematically are important in the pursuit of justice. The Register of Damage Caused by the Aggression of the Russian Federation against Ukraine (RD4U) will be a source of information. Established through a Council of Europe resolution, the register receives, processes, and records claims filed by individuals, entities, and the Ukraine government for damage, loss, and injury from wrongful Russian aggression against Ukraine. (Forty-three nations and the European Union have joined the Register.) A compensation mechanism is yet to be established, but the register is an essential step in the process of pursuing compensation from Russia. The catalog should aid in ensuring that compensation is provided to the right individuals and broader communities. Citizens can now make entries via the Diia app, the main platform for Ukrainian government services.

Three rounds of Rapid Damage and Need Assessments (RDNA) already provide evidence of the mounting toll of the war. The World Bank, the government of Ukraine, the European Commission, and the United Nations coordinate to provide a reliable tally of “total costs” imposed on the Ukrainian economy by Russia’s aggression, with the latest citing direct damage to buildings and infrastructure of up to $152 billion and an estimated recovery and reconstruction cost surpassing $486 billion—“approximately 2.8 times the estimated nominal GDP of Ukraine for 2023.” It is noteworthy that these include the direct cost of destroyed or damaged physical assets and infrastructure—which started increasing significantly as Russia has targeted energy infrastructure—and also economic losses from lost activity and increases in the number of citizens needing assistance. The estimated restoration cost does cause some double-counting alongside the accounting for destroyed physical assets. However, this does not mean the bar for funding the reconstruction is low. The RDNAs integrate the loss of domestic production and increasing dependence on state handouts, which have both reduced revenues and increased liabilities for the government.

Meanwhile, Ukraine has developed a digital platform to track reconstruction projects in the nation: the Digital Restoration EcoSystem for Accountable Management (DREAM). The platform can help the government and international financial institutions (IFIs) differentiate between large-scale reconstruction projects that are long-term endeavors and short-term urgent repairs, and then orient appropriately. In this regard, DREAM is a rare combination of polyvalence and transparency. Developed in tandem with Ukrainian civil society and with support from USAID and UK Aid Direct, the DREAM platform was launched in 2023 by the Ministry for Restoration (formerly the ministry for infrastructure). DREAM is both a “digital route” for and a “window” into projects repairing or replacing infrastructure damaged by the war. Citizens, firms, and municipalities can submit evidence of damage, receive provisional approval, submit invoices, and receive compensation straight to their bank accounts. The platform is transparent down to every individual project. By mapping their density by region, we can see that restoration projects cover most of the territory controlled by the Ukrainian government, whereas new construction projects remain focused on larger cities.

Status of rehabilitation projects logged in the DREAM portal

Data as of April 2024

Source: Dream.ua data and Atlantic Council mapping.

The large percentage of pending or unfinished projects may be due to improper documentation of requests and, in part, a legacy of the cash-flow issues Ukraine faced earlier this year, and has since improved following Japan’s earlier-than-planned donations, EU “bridge financing” (discussed below), Canadian assistance, and passage of a long-planned $61 billion US aid package. Incomplete or poorly prepared applications also account for some of the backlog: Local governments often input projects to ensure they’re noticed but lack the expertise to perfect their write-ups. Still, it is also noteworthy that projects can still be approved without working through DREAM. Direct commissions of large projects can still, as far as we know, bypass DREAM as well. Of the four major lending institutions, only the European Investment Bank (EIB) is using the system. The Cabinet of Ministers of Ukraine had resolved in 2022 to make the use of the platform mandatory but the relevant law has not yet been adopted.

Finally, the work of civil society in connecting funders, firms, and communities in need remains important. The Kyiv School of Economics’ Recovery Lab and former Deputy Foreign Minister Lana Zerkal, who serves on the Coordinating Committee of the Ukraine Facility Platform, among others, are advancing this work.

The state of Ukraine’s economy and finances

Despite the onslaught of aggression and destruction, Ukraine’s economy is growing: 5 percent in 2023 and, based on the International Monetary Fund’s (IMF) forecasts, another 3 percent in 2024. But this comes after a 29.1 percent drop in 2022 and a large loss in the workforce in 2022 due to the mobilization, but 4.5 million Ukrainians have returned home since then. Still, the IMF does not expect the economy to reach its prewar level of production until 2029, and that relies on an assumption of the war ending in the next year. It would also be wrong to think the domestic economy is truly growing. It is adapting to wartime conditions and new firms are being created, but the amount of budget assistance, recovery funding, and humanitarian aid being sent into the country is the dominant factor.

The resumption of shipping from ports provides a bright spot in terms of exports. Despite environmental damage, a perilous sea route, and protests by EU farmers at overland points of entry, Ukraine’s exports of grain and oilseed products are recovering, reaching a wartime high in February 2024—but have not yet reached preinvasion levels.

Firms with a presence in Ukraine have continued to invest. This is partly in repairs and upkeep, but they are also expanding into new fields to shore up their own supply chains or respond to demand. International firms with an established presence in Ukraine have found demand for their products increasing, especially without Russian competitors and with domestic production capacity damaged. The crucial problem is that greenfield investment (i.e., projects starting from the ground up) has been close to zero.

The following chart compares the different components of the national accounts in constant prices. Three clear phenomena are at play: a significant expansion of government spending, irregular gross capital formation as investment slows and firms run down inventories, and increasing reliance on imports. The overall size of the economy is still noticeably smaller—even in the much-depreciated hryvnia. Were data in the chart in current US dollars, the shrinking of the economy would be even more noticeable.

Ukraine national accounts, constant prices

Government revenue has been volatile, though adaptation to wartime conditions and the knock-on effects of inflation have allowed for an impressive recovery. Excluding grants, government revenues fell to $36 billion in 2022, a 32 percent drop from $53 billion in 2021—but recovered sharply in 2023 to $46 billion and are forecast by the Ministry of Finance to fall slightly to $43 billion this year.

The challenge is that the government is expected to fund the war effort while paying pensions, keeping services running, and contributing to repairs and replacements made necessary by war damage. The 2024 budget forecasts $82.3 billion in expenditures, over half of which will go to the war effort and domestic security. In the budget, spending on repairs and reconstruction will fall under the categories of interbudgetary transfers and economic activity, which make up less than 10 percent, but are not exclusively devoted to these goals, putting the ceiling for centrally organized spending on restoration at less than $8 billion. The numbers in Kyiv’s budget reflect only what goes through the Ministry of Finance, so do not include contributions in-kind or directly to the local governments.

Ukraine already faces a large foreign-currency debt burden which it is trying to honor. For now, an agreed holiday on interest payments and war uncertainty preclude it from borrowing more on international markets. So the budgetary deficit has to be filled with a combination of international assistance (both grants and loans) and domestic bonds. Since the beginning of the full-scale invasion, $25 billion in domestic bonds have been purchased; the Ukrainian government would rather not have to rely on bonds too much as domestic savings are finite and the financial system also needs liquidity. Ukraine received $42.5 billion in external financing last year and is on track to receive about $38.6 billion in financial assistance in 2024.

Kyiv has tried to stick to certain principles to remind donors that it is treating their support with care. Its tax revenues cover defense spending, excluding donated equipment and other logistical and intelligence support. Grants and loans from friendly governments and IFIs cover the rest of the government’s liabilities. Kyiv also likes to remind supporters that it is engaging heavily with its bondholders ahead of the end of the debt holiday, which is currently set to end in August 2024. Negotiations with a consortium of Eurobond holders are currently revolving around a resumption of regular payments in exchange for forgiveness of an unspecified chunk, whereas governments that have lent to Ukraine have agreed to holidays lasting until 2027. This is a delicate negotiation for Kyiv, which has avoided falling into “default” status thus far but may do so this year even if bondholders agree to a haircut. The government also has managed to satisfy the IMF that its fiscal consolidation efforts are genuine, as the National Revenue Increase Strategy, published in late 2023, unlocked an $880 million tranche of IMF loans, with an additional $2.2 billion expected in June.

The National Bank of Ukraine (NBU) deserves credit for stabilizing and running a fully functioning financial system, even at the very start of the full-scale invasion. High interest rates and strict controls have prevented capital flight and allowed exchange rates to stabilize following a planned devaluation in July 2022, which reflects lower growth potential and higher dependence on imports. On the other hand, remittances and charity donations—in addition to Western aid—have helped to keep hard currency flowing into Ukraine and prevent a balance-of-payments crisis. The NBU has managed to recover and even surpass the reserve position it had before February 2022. To encourage investments, the NBU has recently announced the relaxation of controls on the payment of dividends to foreign investors and the repayment of foreign currency loans, albeit under a monthly cap.

The goal of this first section was to show the extent of the damage to the Ukrainian economy and that, even with national resilience and competent management, Russian efforts to inflict further devastation continue and the economy still relies absolutely on external support. In the next section, we will look at how this external support is being organized and how this can be improved, both to accommodate bigger strategic decisions alongside day-to-day spending and to demonstrate to Russia that Kyiv won’t run out of money.

Section 2: First steps toward building a reconstruction strategy

Building a reliable flow of money

Ukrainians and the international donor community must be unified around the vision for and the approach to Ukraine’s reconstruction to ensure efficient resource utilization and impactful collaboration. Given the destruction of significant parts of its energy system, industrial base, and housing stock, the country will have to balance urgent basic humanitarian needs with large-scale economic transformation.

First and foremost, Ukraine needs financial and military assistance to be as reliable as possible for at least the next five years to demonstrate long-term resolve to its people and to the Russian leadership. Such steadiness would also provide a more predictable environment for investors, whose decisions to bet on Ukraine’s future will accomplish part of the reconstruction aims and reduce dependence on outside support. Postponements and delays, on the other hand, risk entrenching population displacement and investor reticence.

UK Foreign Secretary David Cameron recently promised that the United Kingdom would give £3 billion a year “for as long as it takes.” Other governments should consider communicating on their commitments in as simple and clear a way, though the political consensus on supporting Ukraine isn’t always as clear as it is in the UK, where the Labour Party has also pledged “ironclad” support for Ukraine in its battle against Russia. Other countries such as Canada, Spain, and Belgium have done the same on military aid, albeit with lower financial commitments.

Passed in early 2024, the European Union’s €50 billion Ukraine Facility is meant as an integrated strategy. The best-publicized part, pillar one, covers €17 billion in grants and €33 billion of loans from 2024 through 2027. The first disbursement—€4.5 billion of “bridge financing”—was sent on March 1. The facility’s innovation comes with pillars two and three. Pillar two provides derisking mechanisms for investors via a “Ukraine Guarantee” of €6.97 billion covering risks for loans and other credit instruments offered by IFIs such as the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD). Pillar three offers technical assistance to help Ukraine converge with EU rules and prepare for accession. The facility also is remarkable for including minimum targets of green projects and tasking the EIB with working with subsovereign entities like regions and municipalities.

Other governments have made an extra effort at decisive moments to help Ukraine. G7 finance ministers’ meetings are the main venue for where Kyiv’s macro financial assistance needs are discussed. For example, as Ukraine’s cash flow problems mounted early this year amid a delay in US assistance and the impact of farmers’ and truckers’ protests on Ukraine’s exports, Japan was able to accelerate a donation of just under half a billion dollars to February, allowing Kyiv to pay teachers’ and other civil servants’ salaries in March and April. This was coordinated through the G7. Canada also sent two billion Canadian dollars through a concessional loan in March, the same day that the third review of the IMF program was completed.

Recovery funding now benefits from its own coordinating body, the Multi-agency Donor Coordination Platform. Launched in January 2023, the body is supported by a Brussels- and Kyiv-based Secretariat. The permanent members of the Steering Committee are Ukraine, the EU, the United States, and the other Group of Seven countries. In February 2024, the roster expanded to include the Republic of Korea, Netherlands, Norway, and Sweden as temporary members, who either have contributed or are committed to contributing at least 0.1 percent of their country’s 2022 GDP and at least $1 billion. Six EU members have observer status: Denmark, Estonia, Latvia, Lithuania, Poland, and Spain. IFIs participate in the meetings.

Already, the Multi-agency Donor Coordination Platform is becoming more prominent. The most recent meeting took place in Kyiv and the US deputy national security advisor for international economics, Daleep Singh—one of the architects of the Russian sanctions regime—made the trip.

The expansion of participants in this coordinating body isn’t sufficient to secure the volume of assistance that Ukraine needs. At its current level of intensity, the war entails an active front that has to be manned, with frequent air raids on civilian infrastructure and valuable economic targets. The flow of aid to Ukraine needs to be sufficient to keep government services operating while funding appropriate repairs within a reasonable time frame.

The two priorities are of course funded by different types of Western support: macro financial assistance funds the Ukrainian government and keeping services open while the recovery would ideally be funded through recovery loans but these haven’t been fully disbursed because they haven’t been matched with enough projects. To avoid delays and inefficiencies, Kyiv should continue building out trust and transparency mechanisms to showcase how international support is deployed. Large in-kind donations such as spare turbines and transformer equipment have been useful on occasion, but come with costs, from transportation to adaptation for the local infrastructure. Some urgent needs are best addressed with cash transfers, which donors are still uncomfortable providing to organizations in certain sectors, like energy.

Money is fungible and the lack of macro financial assistance earlier this year did force the Government of Ukraine to defer recovery projects, though these in theory are funded from a different source. An improvement the Multi-agency Donor Coordination Platform can make is to apply the coordinating prowess G7 finance ministers have demonstrated on macro financial assistance and do more to bring the flow of recovery funding closer to what the Government of Ukraine and the latest RDNA agree is the budget necessary to tackle recovery priorities—$15 billion this year—and should continue to do so in the years to come.

The Multi-agency Donor Coordination Platform may come across as a simple capital-to-capital device that will entrench centralization. However, its structure in no way precludes the sort of country-to-city or country-to-region donor engagement that has been very successful, albeit on a small scale so far. Led by the Danish Export and Investment Bank, the Denmark-Mykolaiv Partnership has earmarked more than $100 million for reconstruction across the city. Local engagement fosters a timely and needs-based pipeline for aid. In the case of Mykolaiv, Denmark rapidly responded to needs including water purification, wildfire containment, agriculture projects, schools, technical support, and energy infrastructure. Such a partnership enables a city- or region-level focus at times when most of the aid is moving through centralized channels in Kyiv (a necessary but imperfect method for addressing urgent needs in localities). Italy and France are exploring similar partnerships and can draw on vital best practices from the Denmark initiative, such as strong governance and robust stakeholder engagement.

If every European country adopted a Ukrainian city on its reconstruction journey, or at least the cities with the worst damages, it would help to ensure that no communities were left behind. This is not a small ask, but these partnerships can begin with small financial commitments and focus on highlighting local needs across Ukraine’s forgotten municipalities for the international donor community. EIB developed a unique solution to the difficulties of local governments’ creditworthiness and the fact that some needs may be too small for the major loan providers, which could be replicated by other major funders: financing guaranteed by the European Union in sovereign loans. In many cases, receiving aid comes down to how well the local leadership can energize international supporters. However, most mayors don’t have the capacity to advocate for their cities on the global stage—in some cases because of simple language barriers but also because of poor creditworthiness.

Large state-owned enterprises also require credit instruments tailored to Ukraine’s exceptional circumstances and needs. This implies intense coordination among those in development finance who are willing to take on the challenge. In June 2023, the EBRD—the largest institutional investor in Ukraine—and eighteen other development finance institutions signed a memorandum of understanding (MoU) on a Co-investment Platform to support Ukraine’s SOEs and private sector. In practice, this means the institutions are meant to coordinate their activities so that funding is deployed strategically. Participants held their first meeting following the MoU in Norway in May 2024.

Where will next year’s money come from?

The outlook for financial assistance to Ukraine is now adequate—a reversal of fortune since the cash-flow challenges in February. It is crucial to avoid making the same mistakes that led to this crisis, which forced Ukraine’s government to slow the pace of even basic repairs.

The European Union and the United Kingdom have made multiyear commitments: £3 billion in the United Kingdom’s case and—assuming the European Union sends at least one-fourth of its four-year Ukraine Facility budget—€8 billion in loans and €4.25 billion in grants from the European Union. On the other hand, the IMF’s disbursements will slow from $5.3 billion to $1.8 billion and most other IFI commitments will go to infrastructure projects and private firms, not the central government. We also have seen that Ukraine’s private bondholders are pushing for interest payments to start again.

As the war draws on, it also seems likely that expenditure will have to be bigger than currently forecast—by about $12 billion above the current baseline deficit projection of $23 billion.

So what can be done?

Recent G7 discussions about using the future interest income from the approximately $300 billion of Russia’s reserves immobilized in the West to lend funds to Ukraine are showing more promise than they have before. The solution would offer a timely injection of cash, $50 billion or more, and this wouldn’t preclude any long-term policy involving the reserves.

The full amount won’t be transferred to the government of Ukraine in one go and it is highly likely some of it would be used to buy weapons on Ukraine’s behalf. Nonetheless, to finance a gap in the 2025 budget which could be the $10-12 billion normally financed by the United States, the instrument could be very useful indeed.

The details that still need to be ironed out for the loan to work include the risk sharing between Europe and North America.

Demining and air defenses should be more of a priority

The international community has not fully grasped the scale of demining that needs to take place in Ukraine, particularly in the liberated territories, to make them ready for reconstruction. Mine contamination and other explosive hazards riddle over a third of Ukraine (180,000 square km), according to the Ukraine government, endangering civilians, halting agricultural activities, and detracting from such areas’ investment prospects. It also complicates the return of civilians to the liberated territories. However, with the right resolve and the latest technologies, Ukraine’s allies can remove this large-scale obstacle to reconstruction.

Ukraine’s National Mine Action Authority, which was established under Ukraine’s 2018 Mine Action Law, oversees mine action activities, coordination, monitoring, and tasking and is in charge of approving national plans for mine action. The Mine Action Centre (under the Ministry of Defense) organizes and coordinates demining efforts in Ukraine, which are conducted by the State Emergency Service of Ukraine, and works with the Humanitarian Demining Center. The Ministry of Economy and the Ministry for Reintegration of the Temporarily Occupied Territories of Ukraine also lead land mine clearance efforts.

The United Nations Development Programme (with contributions from several Western nations) funds 80 percent of the demining operations and multiple nongovernmental organizations such as the HALO Trust are present on the ground. Direct bilateral donations, technical support, and equipment assistance also play crucial roles. The United States, the European Union, and South Korea, among others, have made important in-kind donations with innovative systems including MV-10 demining systems. External entities sometimes struggle or take a while to receive accreditations to assist in demining, but their role is essential. Streamlining the process also offers an opportunity to engage countries and organizations that have been unable to provide military support for Ukraine, like Ireland.

Compared to demining, the lack of air defenses receives relatively more coverage—precisely because the situation has become steadily worse since late 2023. Facing off against Russia’s inexpensive kamikaze drones, Ukraine’s rate of success with its air defenses remains high at 82 percent, but the frequency and sophistication of attacks—often starting with fleets of drones and followed by ballistic missiles—are designed to overwhelm systems. A lack of provision from allies has forced Ukraine to use its supplies sparingly so even valuable economic assets have to be knowingly sacrificed, like the Trypilska power plant in the supposedly well-protected Kyiv region.

The supplemental passed by the US Congress will restore some supplies—but other initiatives including a German-led effort to donate Patriot batteries have fizzled. Finding solutions is beyond the scope of this report, but we see the damage done to Ukraine’s energy network and economy and would welcome anything that can spare Ukraine the impossible dilemma of not being able to shoot down a cheap missile that wreaks extremely costly damage. Analysts have suggested that Poland, for instance, should protect its border areas by shooting down Russian missiles in Ukraine’s skies that are adjacent to its air space, which would free Kyiv to focus its resources further east. Others have suggested embracing Ukraine’s ability to target drone production facilities, storage, and launch units in Russia.

Empowering Ukraine’s leadership structure for success

The chain of command for economic recovery and reconstruction is understandably split and subject to change. As the Office of the President reorganizes these authorities, the priorities should be easy engagement and transparency. Currently, the bodies in the executive branch that have a say over these issues include the Cabinet of Ministers as well as the Ministry of Economy, the Ministry of Energy, the Ministry of Strategic Industries, and last but not least, the Ministry for Communities, Territories and Infrastructure Development. Created by a merger of two ministries in December 2022, the latter oversees the State Agency for Restoration and Infrastructure Development. In the coming months, this key ministry is likely to be split again into separate ministries for regional development and infrastructure.

Meanwhile, the dismissal of the top team at the soon-to-be divided ministry met with some consternation. The team was known for its commitment to transparent decision-making and open data: The DREAM platform was one of its most recognizable achievements. At the June Recovery Conference in Berlin and over the second half of the year, it will therefore be fundamental for the government to show that the systems (and the principles behind them) remain central to decision-making on the allocation of funds to projects. The same should go for procurement. The ProZorro portal, Ukraine’s e-procurement system, is not being used for any military spending, although this represents half the government’s budget. It should be possible to set tenders on nonsensitive purchases through this system.

A second gap concerns the management of big-ticket investments that will drive Ukraine’s modernization and its integration into the EU single market. Ukraine needs an updated public investment management framework and also a fit-for-purpose vehicle for private-sector stakeholders—including those with little to no exposure to Ukraine—to interact and agree on joint ventures. One goal of the Berlin Recovery Conference is to create an online platform for this—which notably could provide access to insight on the relative war risk and mitigation strategies. For it to work, however, the methodology will have to be agreed at least between the government of Ukraine, the European Union, and the IMF, and discussions are ongoing. Once running, this platform should not be restricted to firms based in the participating countries of the Multi-agency Donor Coordination Platform. While these capitals may feel they deserve some recompense for their efforts, it would be foolish to exclude firms that are interested and have something to offer. The most obvious example: Turkish building contractors, who represent the second-biggest global force in this sector after China, provided they aren’t servicing the Russian market.

Section 3: Steps to create a reconstruction-friendly ecosystem

The pull of EU accession

It was the Euromaidan protests against the Ukrainian government’s failure to sign an Association Agreement with the European Union in 2013—as President Viktor Yanukovich pivoted toward Russia—that led to the 2014 fall of the government in Kyiv. Russia responded by invading Crimea and southeastern Ukraine, violating Ukraine’s territorial integrity. Ukrainians continue to desire EU membership, seeing in it the promise of a more prosperous and stable life, and are overwhelmingly in favor of moving in this direction.

The EU accession process is demanding—and provides a very useful framework for reform, with clear incentives, visible and embraced by the public, for making progress toward EU standards.

The thirty-five chapters of the acquis—the body of common rights and obligations that is binding on all EU member states—all come with dozens of reforms. Firms based within the EU’s current border represent an important driver of the move to higher standards in anticipation of membership. Invaluable transfers of know-how on EU law compliance can happen as long as there is a sense that the government and the parliament are stewarding the reforms through.

Even with the uncertainty of the war, tapping into such virtuous cycles will be vital. Efforts made now to comply with environmental standards in the short term will shorten the wait for EU accession. All mid-term reconstruction planning should account for sustainability and green elements and, while there is a minimum threshold of 20 percent of these in the Ukraine Facility, it is worth identifying which will have the maximum impact on Ukraine’s carbon emissions.

Ukraine’s National Energy and Climate Plan (NECP) for 2025-2030 is in line with 2030 Energy Community Treaty energy and climate targets. However, there will be several areas where a long-term vision for Ukraine’s economic and societal prosperity must be carefully balanced with the most urgent wartime needs to keep the lights on, the government running, and the economy afloat. With the latest bombardment on Ukrainian energy generation, securing gas turbines and multiple co-generation facilities and fixing coal power plants must be prioritized in the immediate term. This does not amount to reducing the roles of renewable energy, efficiencies, and clean technologies deployment: Ukraine’s government drew from a clean energy road map produced for Kyiv by nine US agencies ahead of the UN COP 28 climate talks as it set its decarbonization goals, while finalizing its recovery and energy strategy. But a big concern is just what kind of price Ukraine could pay when the European Union’s Carbon Border Adjustment Mechanism (CBAM) kicks in in 2026, with tariffs that penalize trade from countries with insufficiently rigorous environmental rules. The European Union should bear in mind Ukraine’s wartime context. A 2023 European Commission staff report notes Ukraine’s “good progress on environment, some progress on energy and Trans-European networks,” and limited progress on climate change and transport policy.

The European Union, recognizing how cumbersome accession can be, has identified sixty-nine priority reforms, most of which are tied to investment indicators. Some Ukraine Facility disbursements will be tied to progress on these, providing added incentives for progress along the way toward the long-term goal of EU accession.

At this early stage, we are concerned about the European Union’s ability to keep offering Ukraine advantageous market-access terms: They have helped generate much-needed cash for Kyiv and almost all regions, but the objections of European farmers and truck drivers can’t be ignored. As part of the association agreement, the EU-Ukraine Deep and Comprehensive Free Trade Area allows for tariff-rate quotas if a particular good is being exported in excessive amounts. Yet more elegant solutions exist, especially with fungible products like food. More grain entering the single market should also mean the EU has more capacity to export, and global demand remains high. EU and national leaders should be bolder in calling out and refuting Russian disinformation meant to exploit such issues.

Still, the Polish farmer border protests are symptomatic of a wider challenge that the European Union and Ukraine will have to face together. Ukraine remains much poorer than even the least well-off EU member states. In this European Parliament campaign season, low wages in Ukraine have frequently been invoked by some at the political extremes as a reason to delay or refuse Ukraine’s accession. And if the rules on cohesion funding were left unchanged, the EU Council estimates that €186 billion would be redirected to Ukraine over a seven-year budget cycle at the expense of “convergence” elsewhere in the bloc. The European Commission is already working on how it will have to change the rules, but the task is momentous—and will inevitably be costly. An underused argument which Kyiv and EU capitals should lean on more often is that, with the right reforms, Ukraine’s joining the single market can be a net contribution to Europe’s strategic autonomy. We shall see in the following section just how much Ukraine has to offer, from food and critical raw materials to battle-hardened know-how on defense and IT.

Decentralization and winning the fight against corruption

Ukraine has a successful track record on decentralization. Starting from a low bar in the aftermath of the Revolution of Dignity, Kyiv embarked on a three-year process to rebalance decision-making. A new status for amalgamated municipalities, or hromadas, was created and revenue for local authorities increased threefold through a combination of direct transfers and new tax-raising powers. The new hromadas have played a vital role in assisting citizens throughout the war, and they are mostly ready to help allocate funds to reconstruction projects in a way that best suits their citizens.

One area of reform that was incomplete before the 2022 invasion was providing hromadas with the ability to act as a “legal person.” This would provide them with the ability to borrow money more easily and make claims through the courts in a more reliable way. Completing this reform should clearly be a priority so that hromadas can take on a fuller role, including by actively raising funds.

On our research trip, we heard differing accounts of how the anticorruption apparatus was faring. On paper, the division of labor is straightforward and justified. The National Agency on Corruption Prevention (NACP) takes care of strategy and foreseeing legal bottlenecks in dealing with corruption. The Specialized Anti-Corruption Prosecutor’s Office can launch investigations, and the High Anti-Corruption Court’s role is self-explanatory. The National Anti-Corruption Bureau of Ukraine (NABU) has a much broader role, and interlocutors ranging from elected legislators to business leaders suggested this may have become a little too wide-ranging and could do with more checks and balances. It is clear that Ukraine needs a transversal body that is independent and can withstand political pressure. NABU would do well to pursue this important work without television cameras in tow for showy raids and arrests, which only play into Russian propaganda on corruption in Ukraine.

The corpus of judges in Ukraine needs new recruits. The overhaul of the political class since 2014 has not been accompanied by the same replenishment in the judiciary and courts rank among the least trusted public institutions in the country. To the government’s credit, the war has not slowed longstanding plans to “liquidate” the most notoriously corrupt courts, like the District Administrative Court of Kyiv, but the new bodies being set up are often staffed by the same people.

Energy sector reforms

Energy sector reforms have a dedicated subsection in this brief due to their outsized impact on Ukraine’s broader economic recovery.

Tremendous progress has been made on governance and institutional reforms, anticorruption measures, rule of law, and human rights. However, the war has posed unique challenges and opened the door to backsliding, something that had made private equity stay away even before the full-scale invasion. When institutional investors and companies consider entering the Ukrainian market, war risks are not the only deterrents. In addition to concerns shared by other investors about judicial independence and capital controls, energy sector investors seek assurances against seizure and/or nationalization of their assets, whether their return on investment can be easily taken out of Ukraine without controls or restrictions, and whether board management is independent and fully functional.

It will remain challenging to convince foreign investors that Ukraine’s energy sector is worth the additional risks when similar returns could be secured elsewhere.

Good arguments exist. Entering Ukraine’s market now, before reconstruction picks up speed, would give companies competitive advantage and valuable market insight, while paving the way for other growth opportunities in the region.

Ukraine has also conducted energy reforms. The Cabinet of Ministers adopted a resolution on the guarantees of origin for electricity generated from renewable energy sources. This legislative change will improve transparency and valuation of renewable energy production for accurate feed-in tariff payments and cross-border exports, particularly as the European Union works toward expanding the CBAM’s scope. Additionally, Ukraine adopted reforms to align its legislation with the EU Regulation on Energy Market Integrity and Transparency, which drives wholesale energy market integrity and transparency and combats market manipulation with help from an independent utility regulator, the National Energy and Utilities Regulatory Commission, adopted in May 2023.

Another huge milestone is Ukrenergo’s full membership in the European Network of Transmission System Operators for Electricity, as of January 2024, two years after Ukraine cut ties with Russia’s electric grid and pivoted to the European network in record time. Thanks to the updated EU Trans-European energy network regulation, Ukraine can apply for project funds through the Connecting Europe Facility (CEF) program’s calls for transport proposals to strengthen connectivity with EU member states; moreover, the status of the projects of mutual interest may unlock funding and streamlined permitting for energy infrastructure. Cross-border renewable energy projects offer yet another avenue for Ukraine to pursue CEF-Energy support.

Nonetheless, the energy sector has more work to do, particularly in moving toward liberalization of electricity prices. Although an extremely unpopular reform, charging market rates for the cost of electricity would reduce debt for Ukraine’s national energy companies, incentivize efficiency solutions, and attract foreign investment when developers can rely on receipt of payments for electricity generation and services. It’s important to note that ending the blanket fixed low electricity prices for households would be particularly challenging when households are barely getting by. However, with carefully targeted support for consumers in need and effective communication strategies with grassroots engagement, Ukraine can take this difficult step toward creating an attractive investment environment. Extra care must be taken to ensure that this reform does not affect energy security or access for the Ukrainian population, particularly the elderly and disabled, and those with financial hardships or other obstacles. Several waves of tariff increases have already taken place, driven by the financial strain of repairs needed across the system: Prices nearly doubled in June 2023 and again in June 2024. However, they are still below the market rate. Ukraine needs to develop a timetable for the careful phaseout of public service obligations, paired with robust strategic support for the most vulnerable consumers. In addition, Ukraine has opportunities to reduce consumption across district heating systems and integrate efficiency criteria into public procurement processes.

War risk and political risk: Insurance mechanisms

Ukraine was a very large market for “war insurance”—until the war. In February 2022, the risk of an insured asset being damaged became too high for private providers to be able to provide new insurance at a competitive price, and the market dried up. Laudable progress has since been made.

State backing was extremely helpful for insuring the first Black Sea convoys, under the UN-brokered grain initiative. Now, the risk is better spread between friendly governments and a nascent market. The World Bank Group’s Multilateral Investment Guarantee Agency (MIGA) can issue trade finance guarantees giving exporters and logistics providers peace of mind that they will be compensated for shipments that don’t make their destination.

While the available insurance products are a big achievement, they only offer coverage for as long as the shipment lasts. Long-term insurance covering the private investments Ukraine needs is scarcely available. The World Bank’s MIGA has provided coverage for new warehouses and the Unites States Development Finance Corporation and Poland’s Development Fund offer guarantees against political and war-related risks as well. Still, Russia’s targeting of economic assets make an insurance market capable of covering high value-add installations a remote possibility for now. It is still important to prepare. Building robust data portals for evaluating risks and differentiating for every region can start to build an appetite for the private sector to reenter the market.

Human capital

Ukraine’s greatest reconstruction asset is its human capital—and also its most concerning shortage.

Ukraine’s labor markets have been through tremendous disruption since the onset of Russia’s full-scale invasion, with a massive loss of jobs followed by labor shortages in some sectors and high unemployment in others. As men get called to the front lines, women make up a larger percentage of the workforce. Automation and other efficiencies happen out of necessity.

Nonetheless, Ukraine needs to continue making progress on merit-based recruitment and reforming job classifications and salaries because transparency and human resource management feature among the sixty-nine priority reforms in the Ukraine Facility Plan, which calls for a “transparent procedure for selecting specialists for positions and digitalization of civil service and human resources management.” These are major issues for the public and private sectors.

Human capital will play a disproportionately large role in the success of the recovery efforts, which means that investments today will bring compounded economic benefits down the road. Creating a path for bringing people back to Ukraine now—through lucrative employment opportunities, secure schools, and robust air defense capabilities—will be vital for a successful economic recovery and, eventually, self-sufficiency.

Reintegrating veterans into civil society and the workforce is both an economic and societal imperative for Ukraine, and there could be five million of them by the end of the war. Some have missed out on higher education due to the war and should be supported in advancing their studies, should they choose to do so. Others may seek upskilling or retraining. But their unique postservice needs must be prioritized first, with easy access to services including healthcare and financial support.

Ukraine’s future workforce includes schoolchildren now living close to the front lines and who are losing years of schooling due to the insufficient number of shelters. This is the biggest impediment to continued education, as Russia targets kindergartens, schools, sporting facilities, and libraries in its ruthless campaign. Donors should prioritize building shelters to optimize children’s educational opportunities and future career prospects. Big City Lab, in collaboration with public and private stakeholders, is developing principles and testing out pilot projects on how to most effectively rebuild and remodel old Soviet school buildings into safe, social, multifunctional, and innovative spaces fit for tomorrow’s needs. Such pilot projects can be recreated in other sectors to develop best practices for reconstruction.

International organizations can expand support for strategic reskilling, upskilling, and specialty trade training. The technology sector can provide the mechanism for these trainings and is a growing sector in its own right, particularly in providing employment opportunities for veterans. Digital startups are at the front lines of innovations. Ukraine is already exporting solutions, such as the Diaa portal of digital services, to other countries.

Rail, roads, and ports

Efficient and frequent movement of goods will be a key metric for Ukraine’s economic recovery.

And to reinforce earlier points, none of these large-scale investments will be realized without sufficient and sustained air defense. Investing in Ukraine’s transportation system by the EBRD, EIB, and the World Bank must be scaled now through private sector engagement to maintain current trade volumes and prepare the system for large-scale reconstruction efforts, including the tonnage of materials coming in and burgeoning exports leaving Ukraine through ports, railways, roads, and air.

Ukraine has already achieved important transportation reforms, such as decentralizing the state agency of roads, Ukravtodor, and reforms and greater transparency through ProZorro. However, Ukraine will need to adopt and implement the trans-European transport network (TEN-T) guidelines and prepare its transport system for decarbonization and digitalization.

Donors have an opportunity to support feasibility studies for priority projects identified under the Indicative TEN-T Investment Action Plan. Moreover, pairing ProZorro with additional transparency and verification measures in the transportation development area will contribute to weeding out corruption risks and instilling confidence for the donor community. Digitalizing, upgrading, and securing “soft infrastructure” like customs controls and port data systems would improve efficiency and ensure consistent adherence to process.

The US government deserves particular praise here. USAID’s contribution to upgrades to border crossing infrastructure and railway infrastructure leading to the European Union will help the integration of Ukraine’s economy into the single market; and while a prosperous Ukraine is clearly a US foreign policy goal, the projects will benefit the US economy much less directly.

Section 4: The best opportunities for each economic sector

Russia’s hybrid war is spreading at the rate of an aggressive cancer, penetrating all sectors of Ukraine’s economy to destroy Ukraine on the financial battlefield, as Russian President Vladimir Putin fails to win on the actual front lines. Every dollar Ukraine can produce through trade is a win against Moscow’s efforts to diminish Ukraine’s economic output, and vital tax revenue for the military budget. Support for Ukraine’s top sectors and trade is the smartest investment into the country’s future self-sufficiency and economic stability.

The European Council presidency, in consultation with parliament negotiators, provisionally extended the duty-free trade agreement with Ukraine until June 5, 2025, which is pending June steps for official adoption. The action—which includes an automatic safeguard mechanism to trigger “tariff-rate quotas” for poultry, eggs, sugar, oats, maize, groats, and honey as well as “enhanced monitoring” of wheat and cereal imports—underscores the importance of EU member nations’ domestic communication of the benefits of this economic lifeline for Europe.

Recovery Priority #1: Supporting Ukraine’s energy sector

The energy sector will be the engine of Ukraine’s reconstruction, but urgent support is needed now to keep it from collapsing. Moscow annihilated much of Ukraine’s energy generation—but not the country’s rich energy potential, nor its ingenuity and resolve. Ukraine urgently needs more air defense and a lifting of restrictions on how it deploys weapons furnished by its allies to prevent Russians from leveling more cities and driving civilians into a state of despair and displacement. As long as any prohibition to use US weapons for attacks on Russian soil is in place, Ukraine’s power plants are sitting ducks and prime targets for Moscow’s bombardment. These restrictions are slowly and incrementally being lifted, but Kyiv still faces difficult trade-offs on defending key economic assets.

Ukraine’s air defense and offensive capabilities should be complemented with passive protection (i.e., physical barriers for critical infrastructure) which is effective against drones and is currently being enhanced to withstand missiles when covering smaller critical structures such as a transformers, substations, and generators. Meanwhile, the large power plants must rely on air defense for protection. This multilayer strategy for defending critical energy infrastructure—grid, centralized power plants, transformers, gas storage systems—is crucial for future energy development and energy system transformation.

The latest wave of attacks aimed at destroying centralized energy production capacity and natural gas storage caused immeasurable harm and system imbalance, with Ukraine having to resort to scheduled blackouts and purchasing electricity from its neighbors instead of producing it at home at a fraction of the price. Preparations for the winter must start now as the system is already in critical condition months ahead of the heating season. Securing and financing gas turbines to ensure sufficient capacity and balancing the grid is a matter of life and death for the Ukrainian population this winter. The G7+ Energy Coordination mobilizes efforts to restore and protect Ukraine’s energy infrastruture through efforts such as equipment procurements and the Ukraine Energy Support Fund, managed by the Energy Community Secretariat, is intended to finance critical energy equipment for Ukraine, such as procuring gas turbines. All possible efforts must be made to expedite procurement while adhering to the Austrian Federal Public Procurement Law (given that the secretariat is based in Vienna). Capacity-driven delays must be addressed through proper staffing at the secretariat and timely communication with the Ukrainian stakeholders.

Decentralizing Ukraine’s energy production system requires a multipronged strategy, which Ukrenergo is leading with support from relevant ministries. Distributed generation would advance decarbonization, make for challenging targets for Moscow’s attacks, and could present an appealing investment opportunity for the private sector. Such a system will require smart and digital solutions and customer service, with strong cybersecurity measures. Storage installation could be owned by the distribution system operators to attract financing. Coordination with local communities, both to tap their capacities and get buy-in, will be foundational to the success of building out distributed networks. Ukraine can work towards establishing a decentralization ecosystem through regulatory changes (such as streamlining connectivity rules), feasibility studies for projects, and liberalization of electricity prices.

Ukraine has tremendous clean energy resources (including wind, solar, hydropower, and geothermal potential); low-carbon gases including biomethane; critical minerals deposits; and unparalleled expertise in cybersecurity and system resilience and recovery from kinetic attacks. Conducive policies will be essential for encouraging investments. Ukraine’s National Energy and Climate Plan—an important condition for securing financing via the EU’s Ukraine Facility—will be presented at the Berlin Recovery Conference on June 11-12: This will signal which clean energy technologies will play the biggest roles in meeting climate targets for the country, the policy gaps to enable their deployment, and most importantly, private investment needs to reach scale.

There is untapped potential in energy efficiency for Ukraine. Soviet buildings were built without care for energy conservation. Determining which buildings to remodel and which to demolish will be an important part of the reconstruction process. Cost and building condition will play a major role. The industrial sector presents tremendous opportunity for cutting energy consumption and could lead to 12.5 million tonnes in CO₂ reduction, and $3 billion in annual savings, with $13 billion in investments through 2030. Low energy costs are also a key driver in industrial competitiveness and would contribute to the revival of this important sector. In 2023, Ukraine launched the State Fund for Decarbonization and Energy Efficient Transformation, which could be an effective mechanism for attracting international loans and grants for the implementation of investment projects. However, Ukraine will need market mechanisms to properly account for the value of energy efficiency investments, which pay for themselves over time (particularly in a liberalized market), but may require a higher upfront cost compared to less-efficient construction and technologies. For scale, Ukraine will need market solutions which will enable the private sector to capitalize on efficiency investments. On paper, Ukraine’s energy efficiency rules are generally aligned with the European Union’s; however, opportunities exist for infusing energy efficiency criteria into both the public procurement process and strategy for building renovations. Ukraine should also seek to attract investment for making the transmission and distribution systems more efficient.

A number of Ukrainian state-owned enterprises, such as Energoatom and Ukrnafta (owned by Naftogaz), are integrating independent boards into their leadership structure to create additional layers of transparency and verification. These boards will have a unique opportunity to advance implementation of reforms and instill confidence through transparent operations and practices.

Nuclear energy is a critical low-carbon, balancing resource for Ukraine, which has a wealth of expertise in the sector. Ukraine should continue building partnerships with Western countries and companies to extend the life of existing reactors, build out new capacity, and diversify nuclear supply chains for future nuclear plants and uranium enrichment. To lay the foundation for an appealing investment environment, Ukraine needs to complete reforms at Energoatom (under the leadership of the new supervisory boards) and carve a path forward on transparent denationalization. Following debilitating capacity losses, Ukraine is looking to undertake nuclear build-out starting as early as 2024, utilizing existing equipment from Bulgaria. Most importantly, the international community must pressure Russia to leave the Zaporizhzhia nuclear power plant, a 6 GW facility, before an accident takes place.

Recovery of Ukraine’s energy sector will hinge on the support of a multitude of stakeholders, and multilateral development banks are poised to play a key role. When it comes to gas, however, some of these institutions have guidelines that prevent or make it challenging to finance such infrastructure, per climate commitments. This is a missed opportunity to support Ukraine in its time of need—especially since investment in gas turbines and piston installations would accelerate Ukraine’s shift away from coal.

Ukraine’s natural gas network could be redeployed to transport Ukraine’s indigenous gas production and low-carbon gases (with some adjustments), after the gas transit agreement with the Kremlin expires by the end of 2024. There is a chance that European traders may work out a short-term agreement with Gazprom on the flows and negotiate the transit fees with Ukraine separately. However, for any gas flows to continue moving through Ukraine, the country needs to invest in border-metering mechanisms for clarity on export volumes. Ukraine also needs a strategic vision for its robust pipelines network, most of which is not utilized at the moment, as the upkeep of the entire network weighs on the country’s expenditures at a critical time. With sufficient air defenses, European traders can continue to utilize Ukraine’s vast gas storage in the western part of the country—which they have done so far without war risk insurance. The storage system has demonstrated incredible resilience in light of the recent escalatory attacks.

Large-scale investing in agriculture

Dodging bombs and navigating land mines are not standard farming practices, yet Ukrainian farmers have persisted. The resilience and bravery shown in this sector, which employs 14 percent of Ukraine’s population and yields 12 percent of country’s GDP, must not be taken for granted. The sector requires large-scale investments to continue and expand this level of production and prevent famine for the consumers reliant on Ukrainian crops, who number 400 million.

First and foremost, Ukraine’s farming communities must be demined (as discussed above), and secure and reliable transportation routes and storage must be established.

The full liberalization of the agriculture market in early 2024 unlocked a variety of financial mechanisms for farmers, such as the ability to borrow against their land. Notwithstanding, additional capital is needed for farms of all sizes to improve operations productivity and maintain export levels.

Avoiding deindustrialization and seeking a competitive edge in manufacturing

Ukraine’s manufacturing sector has been battered since Russia’s initial invasion in 2014, which led to illegal occupation of Ukraine’s industrial centers. COVID-19, inflation, the full-scale invasion, and workforce migration (mostly forced by the war’s atrocities) have placed more pressure on the neck of once a robust economic sector. Massive investments in modernizing, digitalizing, and efficiency measures are needed to keep Ukraine’s factories afloat. But the sector is also deeply interconnected to developments in air defense, secure and reliable transportation routes, transparent and functioning customs systems, and clear signals from the European market on how Ukraine can contribute to EU strategic autonomy through priority trade partnerships such as in the mining and processing of critical minerals.

Unleashing tech innovations

Ukraine is digitizing its economy at record speed. In some cases, this is happening out of necessity to provide vital, urgent services in a safe environment through platforms such as DREAM, Diaa, Prozorro, and United24. Digitalization also enables transparency and verification—top requests by Ukraine’s donors. This is also a space with top growth potential as new sectors integrate digitalization into their reforms and to create efficiencies and automation. Ukraine’s sophisticated IT sector offers some of the most desirable jobs in the country, with one opening attracting 150 applications. The sector already employs 300,000 professionals and has plenty of room to grow. Ukraine has a unique opportunity to unleash its digital space innovations while it prepares to synchronize its regulatory environment with EU legislation such as the Digital Services Act, AI Act, and the Digital Markets Act.

Summary of recommendations

Measuring the damage

International stakeholders

Support Ukraine’s capacity to track damages, develop a verification mechanism, and connect to resources, particularly in areas that may lack capacity and capabilities with documenting destruction. Enlist AI and automation where feasible.
Develop a focused platform enabling the Ukrainian government and IFIs to differentiate among large-scale projects as either long-term or short-term/urgent repairs.

General reconstruction strategy

International stakeholders

Provide multiyear financial, recovery, and military assistance commitments (of five years at a minimum) to establish a reliable investment ecosystem.
Support reconstruction during wartime as a vital ingredient to Ukraine’s victory, morale, and future economic prosperity, treating this call for international investment with the urgency necessary for its success.
Unify around an allied vision and approach toward Ukraine’s reconstruction to ensure efficient resource utilization and impactful collaboration.
Prioritize support for the completion of demining Ukraine’s territories to avoid derailing reconstruction.
Enhance aid and reconstruction coordination efforts among donors via the special envoys for reconstruction.
Support municipalities and underserved communities in advocating for themselves through, for example, partnerships between European nations and Ukrainian cities, following the success of the Denmark-Mykolaiv example.
Find creative financial solutions for local government authorities and SMEs which lack creditworthiness, using sovereign guarantees and workarounds provided by the EIB where possible.
Recognize the delicate balance between Ukraine’s urgent needs to fuel the economy and making progress toward a resilient, low-carbon future.
Make recovery convenings more impactful through an action-driven approach.
Continue decoupling from Russian infrastructure.
Encourage CEOs and boards to visit Ukraine to understand the challenges and opportunities.

Ukraine government

Enhance the leadership structure of and coordination across Ukrainian ministries, streamlining decision-making and communication with external stakeholders.
Kyiv should continue building out trust and transparency mechanisms to showcase how international support is deployed.

Energy sector

International stakeholders

Assist Ukraine in bolstering protection of its energy infrastructure, which needs passive (physical barriers) and active (air defense) protection from Russian bombardment to minimize future damage and attract investment in the sector.
Expedite equipment procurement under the Energy Community Secretariat platform and other mechanisms.
Participate in public-private investments to advance decentralization of the energy network through distributed generation, batteries, and prosumers (i.e., those who both produce and consume energy), which is a massive undertaking necessary to secure, decarbonize, and liberalize Ukraine’s energy system.
Reduce barriers and restrictions for multilateral development banks to finance gas infrastructure in Ukraine to secure sufficient capacity and balancing services this winter.

Ukraine government

Devote vigor to the important work of decentralizing the energy network.
Make progress on liberalized energy market pricing while maintaining targeted subsidies for vulnerable populations.

Agriculture

International stakeholders

Invest in demining, transportation, and storage.
Ensure farms of all sizes have access to capital.

Workforce

International stakeholders

Prioritize building school shelters to optimize children’s educational opportunities and future career prospects.
Expand support for strategic reskilling, upskilling, and specialty trade training opportunities.

Ukraine government

Continue to make progress on merit-based recruitment and the reform of job classifications and salaries.
Support veterans in reintegrating into civil society with comprehensive services, continued education, and reskilling and upskilling opportunities.

Finance

International stakeholders

Support Ukraine in absorbing aid in a timely manner through capacity building and streamlined procurement.
Promote Ukraine’s potential as a net contributor to Strategic Autonomy. EU citizens tend to be told about substantial cost of supporting Ukraine’s accession but know less about its supplies of critical minerals (especially titanium) and its innovative defense sector.
Unlock grants and incentives for Ukraine’s private sector, particularly in workforce development and creating efficiencies and automation. Provide support for small- and medium-sized enterprises through grants, loans, and risk mitigation, addressing the main barrier of war-related risks and the lack of related insurance products.

Ukraine government

Continue to modify strict capital controls imposed at the beginning of the full-scale invasion, which are a deterrent for new investors. A recent relaxation announced by the National Bank of Ukraine includes a provision for the payment of dividends to foreign investors and the repayment of foreign currency loans, albeit under a monthly cap, which should be gradually lifted as long as capital outflows do not undermine financial stability.

Stakeholders and the Ukraine government

Ensure that no communities are left behind during aid distribution through municipalities capacity building.

General reforms

Complete the decentralization reforms, including granting hromadas “legal person” status.
Hire new judges and improve their salaries.
Harness investment by firms based in the EU as a driving force for convergence with EU rules and norms.

Conclusion

This report has avoided sugarcoating the reality of Ukraine’s economic and financial predicaments. We still believe it is a testament to unmatched resilience and innovation amidst the challenges of war. As we discuss recovery, two imperatives emerge: sustained multiyear military support, especially for air defenses; and clear, forward-looking funding commitments, in macro financial assistance and in recovery grants and loans. These are two distinct funding streams but, when we visited Kyiv, uncertainty over the former was affecting the government’s cash flow and preventing it from focusing on recovery projects which were already feasible.

Even amid conflict, reconstruction is necessary because of the destruction it has wrought. By prioritizing viable projects in sectors such as energy, industry, agriculture, transport, and technology, and ensuring transparency, we can drive economic recovery and help Ukraine meet EU standards.

The upcoming conference in Berlin has broken the task ahead into four dimensions: business, the human dimension, regions, and EU accession. However, due to Russia’s ongoing attacks, the most urgent priorities are restoring energy capacity and bolstering air defenses to protect new and existing assets.

Now is the moment for Ukraine’s allies to take decisive action. By supporting Ukraine today, we invest not only in its survival but also in its future contributions to a stronger, more prosperous Europe. Together, we can help Ukraine rebuild and thrive, setting a powerful example of hope and resilience for the world.

ABOUT THE AUTHORS

Staff

John E. Herbst

Senior Director

Eurasia Center

Ukraine Politics & Diplomacy

Staff

Olga Khakova

Deputy Director and C. Boyden Gray Senior Fellow

Geopolitics & Energy Security Europe & Eurasia

Staff

Charles Lichfield

GeoEconomics Center

Economic Sanctions Economy & Business

The authors would especially like to thank Nicholas Pantazopoulos, who conducted critical graphing and cartography, and Lizi Bowen, who led web design, in this effort.

Russia is winning the energy war and plunging Ukraine into darkness

Elena Davlikanova — Thu, 06 Jun 2024 13:52:33 +0000

Electricity blackouts are the new normal in Ukraine as the country struggles to cope with the consequences of a devastating Russian air offensive that has destroyed around half of Ukraine’s wartime power-generating capacity since the start of 2024. Millions of Ukrainians are now adapting to the reality of regular power cuts, with electricity in many cases restricted to just a few hours per day and the buzz of generators becoming a routine feature of life throughout the country.

Russia’s first attempt to destroy the Ukrainian power grid, which began in October 2022 and continued until March 2023, ultimately failed to achieve its objective. However, the current campaign has so far proved much more successful. Russia has clearly learned important lessons from its earlier air offensive, and has also benefited from growing gaps in Ukraine’s air defenses caused by delays in Western military aid.

In the past five months, Russia has managed to damage or destroy all of Ukraine’s thermal and hydroelectric power plants. The latest large-scale wave of missile and drone strikes on June 1 resulted in damage to power-generating facilities in five different regions across Ukraine, leading to warnings from officials that extended periods without electricity are now inevitable and will likely remain a feature for many months to come.

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The Kremlin’s bombing campaign has a number of goals. Russia seeks to undermine the Ukrainian economy by reducing industrial capacity, including in the rapidly expanding Ukrainian defense sector. By forcing Ukrainians to live without regular access to electricity, Russia also aims to demoralize the civilian population and weaken the country’s resilience. Moscow hopes this will fuel public calls for an end to the war and set the stage for a future peace agreement on Russian terms.

Thanks to sunny summer weather and long hours of daylight, the regular power outages currently being experienced across Ukraine are highly disruptive but not yet disastrous. Once temperatures begin to drop and winter draws closer, the implications of Russia’s bombing campaign are expected to become far more serious. Experts predict it will take years to repair Ukraine’s power grid, but urgent steps are required now in order to prevent a potential humanitarian catastrophe from unfolding during the coming winter season.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

The Ukrainian authorities have established a coordination center to address the mounting energy crisis in the country. Current measures to compensate for power shortages include the installation of gas-fired energy generation plants. Imports from neighboring EU countries represent another key source of additional electricity.

The loss of thermal and hydroelectric power generation means Ukraine is now increasingly reliant on the country’s nuclear power plants. The Ministry of Economy is investing in Energoatom to expand capacities, but constructing new plants is both extremely expensive and time consuming.

Renewable energy currently constitutes a significant portion of Ukraine’s remaining energy output, with much of this segment concentrated in the south of the country. While there is considerable room to expand renewable power generation, green energy options offer unstable power output, creating additional practical challenges for the Ukrainian energy grid.

One of the main focuses of the government’s strategy is the decentralization of the Ukrainian energy system. This is expected to involve smaller power plants that will be less vulnerable to Russian bombardment. To support this transition, efforts are underway to streamline procedures for the connection of small-scale power generation facilities to the national grid. A government program is also offering incentives for housing associations to install solar panels on residential buildings.

The biggest security challenge remains protecting the Ukrainian power grid from further Russian attack. In recent months, Ukrainian officials have consistently communicated that additional air defense systems are the country’s top priority. First and foremost, this means US-produced Patriot air defense systems.

So far, Ukraine’s pleas have largely gone unanswered. Although Ukrainian diplomats claim to have identified one hundred “available” Patriot systems worldwide, there has been no rush to supply Ukraine. Only Germany has committed to deliver one system, with talks continuing over possible delivery of Patriots from a number of other partner countries including Romania. Unless Ukraine’s air defense deficit is resolved, all other efforts to counter the Russian bombing campaign of the country’s energy sector may prove futile.

Dr. Elena Davlikanova is a Democracy Fellow at the Center for European Policy Analysis and an associate professor at Sumy State University in Ukraine.

This has caused levels of damage far beyond anything witnessed during previous Russian air offensives. Ukraine’s largest private power producer, DTEK, confirmed in early May that more than ninety percent of its thermal power plants had been destroyed. Meanwhile, the news from state-owned power generator Centrenergo was even grimmer, with all coal-fired units wrecked by Russian bombardment.

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For the time being, the situation is not critical. With the days currently getting longer and Ukraine basking in glorious spring sunshine, power consumption remains relatively low and can mostly be covered by the country’s remaining nuclear and renewable generation. Nevertheless, when electricity demand spikes during evening hours or when the weather turns cloudy, Ukraine is already facing shortfalls that cannot be entirely met with imports from neighboring EU markets.

In order to balance the power grid, Ukraine’s transmission system operator, Ukrenergo, has introduced a schedule of rolling power cuts that leave households and industrial consumers without access to electricity for hours on end. This is impacting the production capacity of the Ukrainian defense industry, which is expanding rapidly in a bid to reduce the country’s reliance on faltering Western supplies of weapons.

Ukraine’s current electricity shortages are relatively straightforward compared to the far more serious challenges posed by the rapidly approaching winter season. While the sun is now shining in Ukraine, within five months the country will enter a half-year period of freezing temperatures and long, dark nights with much of its energy generation capacity wrecked and demand for electricity likely to double. This is a recipe for potential humanitarian catastrophe that requires urgent international attention.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine’s heroic energy engineers are currently hard at work mending torn transmission lines, rebuilding power plants, and attempting to fix damaged transformers. In many cases, these repairs need to be carried out from scratch. Power companies are appealing to EU countries to donate old kit from decommissioned stations or share spare stocks ahead of the coming winter season. Efforts are also underway to increase border capacity with EU countries by around one-third in the coming months.

If Ukrainian power producers succeed in restoring a large portion of damaged thermal capacity, the country will be relatively well equipped to cope with the seasonal surge in demand once winter arrives. Some small-scale generation capacity using natural gas may also be added to the system, helping to bring more flexibility during periods of peak consumption.

However, it is crucial to underline that this is a highly optimistic scenario. Without significantly enhanced air defenses, the danger of fresh Russian air strikes will remain. Any energy infrastructure repaired between now and October may well be destroyed once again on the eve of the first big winter chill.

A number of alternative solutions to Ukraine’s energy sector crisis have been pitched so far. These include building decentralized electricity clusters around urban areas that would be less vulnerable to Russian bombardment. Other proposals depend on the possibility of expanding interconnection capacity with EU countries and increasing production specifically for export to Ukraine. While such steps could play a vital role in enabling Ukraine to survive the coming winter season, they would likely require complex political negotiations.

The most immediate challenge facing Ukraine is defending the country’s remaining power grid and preventing Russia from destroying repaired facilities. This should be the top priority for all of Ukraine’s partners. While recovery and investment conferences offer hope for the future, Ukraine desperately needs additional air defenses to keep the lights on right now. If this does not happen, millions of Ukrainians will face the prospect of a rapidly deteriorating humanitarian situation as the winter season draws closer.

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More than 900 participants joined this year’s summit, which every year aims to explore ways to tap members’ vast economic potential while fortifying against mounting security threats. They discussed ways to advance connectivity, economic growth, and broader security by overcoming shared regional barriers via the 3SI mechanism. However, making progress between summits requires institutionalization of the 3SI through a permanent secretariat body to maintain momentum and focus between the annual events.

How a 3SI institution could work

The secretariat could be launched and housed in a neutral, non-3SI city in Europe, preferably a financial hub, like Brussels, with a small permanent team whose operating costs would be covered by the 3SI country hosting the summit that year. The 3SI team’s initial guidance could include exchange of information between 3SI stakeholders, outreach to private investors, and the promotion of cross-border digital, energy, and transportation projects in the region, with a particular focus on the project priority list. In a sense, the secretariat would serve as a library of projects for inquiring investors. The 3SI platform can play a meaningful role in helping resolve top priority issues in the region, which were raised repeatedly at the summit, ministerial, and in private events (including those jointly hosted by the Atlantic Council, Clean Air Task Force, and Amber Infrastructure Group). These issues include:

Access to finance
Fragmented market
Supply chains risks
Russian aggression in Ukraine and the broader region
Commercialization of new technologies and innovative solutions
Workforce shortages

By addressing these challenges throughout the year (through the work between the summits), the 3SI stakeholders would create compounding benefits, securities, and efficiencies for Europe, particularly through 3SI’s unique power to connect traditionally siloed sectors and geographies and its magnifying platform for bringing attention to the top challenges in the region.

Leaning into the 3SI mission

Once a 3SI body is created, it can rapidly get to work on actualizing steps toward achieving its goals, including regional integration of resources, coordination of workforce development, optimization of external partnerships, and raising finance. Dialogue at the Three Seas summits has yielded broad consensus and support for these priorities.

Goal 1: Integrating the regions, markets, and innovation

Despite gigantic leaps in connectivity across Europe, regional integration is hampered by the lack of cross-border coordination, regulatory hurdles, supply chain risks, and market fragmentation. These gaps create diverging prices, inefficient routes, and lags in information sharing. 3SI would not be a one-fix-fits-all in resolving these issues, but the presidential-level platform has untapped potential to alleviate some of these challenges. 3SI is uniquely positioned to highlight the regional cost and security threats of insufficient energy interconnection, transportation routes, and digital integration. Priority-project lists should be frequently updated and expanded, something the secretariat can manage, to provide ample options for potential investors with projects’ bankability and other relevant details included.

Moreover, 3SI has a unique opportunity to embrace a technologically neutral approach while focusing on solutions-driven criteria: competitive pricing, carbon emissions, environmental impacts, and secure and diversified supply chains. To scale new technologies, the 3SI secretariat could support existing regional coordination on regulatory alignment to forge an easy-to-navigate investment environment. Cooperation on cyber security and kinetic threats across 3SI stakeholders can enhance protection for these technologies and infrastructure in the region.

Goal 2: Investing in a workforce that will transform the region

In addition to the work dismantling regulatory barriers, 3SI can contribute to forging an innovation ecosystem through building a talented workforce for the future. The Three Seas economies have a unique opportunity to exchange data around the current labor force and the anticipated talent gap in energy, digital, and transportation sectors. The region is already leading in science and technology education in Europe and can build on this competitive advantage by scaling the number of trained professionals through coordinating programs and forging an efficient education-to-workforce placement pipeline. The annual 3SI summits could include programming dedicated to student engagement, recruitment, and education on key opportunities in the growing sectors.

Goal 3: Optimizing collaboration with 3SI associated and strategic partners

Japan’s inclusion as a 3SI strategic partner this year is a testament to the value of global partnership on commercialization of new technologies and diversified supply chains. Several summit panels touched on driving Japanese companies’ investments in the region, particularly rail and communications sectors development.

3SI countries also have an opportunity to develop strategic priorities in support of associate members Ukraine and Moldova (complementary to the existing efforts), while exploring the potential to build additional energy and transport interconnections, as well as collaboration in the digital space.

Goal 4: Financing a secure, competitive, and low-carbon Three Seas region

An enormous barrier to achieving 3SI priorities is the trillion-dollar gap between where infrastructure stands today and where the region agrees it needs to be. National budgets are insufficient. EU funding is challenging to access and excludes some infrastructure and technologies. The Three Seas Fund, 3SI’s investment arm, can play an important role in leveraging private finance and helping match public and private capital to realize the projects. As the next round of the 3SI fund is established, attracting private equity will be crucial for reaching scale of impact. Cross-country coordination creates efficiency and minimizes risk for cross-border investments, particularly in addressing the grid infrastructure gaps and preparing roads for a safe, low-carbon transportation future.

Achieving a shared vision of the future

No similar coalition exists with focus on security and economic prosperity through integration. This shared vision of a secure, digitized, integrated, low-carbon, resilient economy is refined every year at the Three Seas Summit as new ideas are shared on stage, discussed during coffee breaks, and put to the test following the conference. With the formalization of a 3SI institution to build on the work between summits, 3SI could be an unstoppable platform for realizing the region’s rich potential and talent.

Olga Khakova is the deputy director for European energy security at the Atlantic Council Global Energy Center

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Without tariffs, the EU faces a flood of Chinese imports of the ‘new three’

Joseph Webster — Thu, 23 May 2024 18:49:40 +0000

Washington’s recent tariffs against Chinese products all but ensure a flood of these exports to Europe, necessitating a response from Brussels. The products include China’s “new three” cleantech exports—lithium-ion batteries, electric vehicles (EVs), and solar panels—posing undeniable dilemmas for Brussels as it balances security, economic, and climate interests. To head off a deluge of Chinese products while also allowing some to support decarbonization goals, Brussels should selectively and thoughtfully apply greater tariffs and restrictions. Concurrently, European industrial policy should prioritize the development of indigenous battery and EV supply chains and manufacturing capacity.

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The European Union’s imports of the new-three cleantech export categories have skyrocketed in recent years. Over the course of 2023, China’s exports to the EU totaled $23.3 billion for lithium-ion batteries, $19.1 billion in solar panels, and $14.5 billion for electric vehicles.

Sources: PRC General Administration of Customs, Author’s Calculations

Europe’s imports of these cleantech products have fallen in recent months, partly because of the global glut in solar panels and constraints on installations. The EU’s anti-subsidy investigation into electric vehicles, launched in October, has also cooled shipments.

Europe’s most consequential tariff decisions concern EVs and batteries, as these products hold economic and strategic relevance.

With the automotive sector indirectly providing 6.1 percent of total EU employment and 7 percent of GDP turnover, EVs and batteries are a key future driver for the EU’s economy. This sector is at risk due to China’s heavily subsidized auto exports.

While transitioning to EVs from internal combustion engines will necessitate disruptions, ceding Europe’s auto industry would deliver a “second China shock” of mass economic dislocations, all but ensuring a fierce political blowback with potentially calamitous implications for the European project.

Reasonable people could disagree about the wisdom of allowing cheap Chinese imports to undercut domestic industries in the 1990s and 2000s. At the time, many believed that greater economic linkages between the West and China would produce rising living standards across the board, reduce geopolitical frictions, and potentially even lead to constructive political changes within China itself.

That didn’t happen. While trade with China led to complicated, often ambiguous impacts for Western economies, Beijing threatens global democracy more than ever, and the Communist Party continues to rule mainland China with an iron fist.

Recognizing this dynamic, various European Union bodies have characterized the Chinese government as a “systemic rival”—as well as a partner.

While European threat perceptions of Chinese exports largely center around economic and political concerns, security dimensions shouldn’t be overlooked.

China’s exports of sensor-laden connected vehicles pose potential espionage and sabotage risks. Chinese security services could use these vehicles to monitor European military and political facilities, as well as collect real-time economic and mobility data. In a worst-case scenario, these vehicles’ software systems would be vulnerable to hacking.

China’s lithium-ion battery complex also has latent military potential, as batteries are critical components for diesel-electric submarines, unmanned maritime platforms, and aerial drones. Moreover, technological advances in solid-state batteries could offer significant, potentially game-changing performance improvements for military use cases.

Given the economic and security risks, Europe should impose tariffs on Chinese exports of EVs and lithium-ion batteries. To balance decarbonization goals with these other needs, however, Europe could follow the US approach by phasing in certain tariffs, such as on Lithium-ion non-electrical vehicle batteries. These batteries are useful for grid decarbonization but pose few direct security threats.

China is unsubtly hinting it will respond to any European tariffs with countermeasures, including against wine and dairy exports.

Yet Europe is better off accepting short-term pain than allowing the formation of a clean energy cartel overseen by a systemic rival.

In other cases, such as solar panels, Chinese clean tech exports pose few economic and security risks to Europe. This industry has left Europe and isn’t coming back, especially since European solar potential is limited. Although inverters should be monitored closely, there are no known security risks for solar panels, which cannot communicate with the grid. Consequently, Europe should accept Chinese solar imports while still ensuring that global supply chains are not held hostage to a single supplier.

Importantly, the West should continue to emphasize to Beijing that it seeks to de-risk rather than decouple supply chains. While Western trade with China has not fundamentally improved ties, commercial ties nevertheless can provide ballast for the relationship, mitigate security dilemmas, and provide economic benefits.

To stop political ties from deteriorating further while maximizing trade and climate benefits, Europe and its partners should identify products where commerce can be conducted with China without damaging economic or security interests.

Still, Europe should rapidly employ tariffs and fiscal support to bolster critical industries and technologies, including EVs and batteries. Balancing decarbonization objectives with economic and security needs is no easy task, but Brussels must find sure footing on this tightrope, and quickly.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the independent China-Russia Report. This article represents his own personal opinion.

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I. The impact of sanctions: A brief overview

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Oil, gas, and war: The effect of sanctions on the Russian energy industry

Vladimir Milov — Thu, 23 May 2024 13:00:00 +0000

Russia’s full-scale invasion of Ukraine in February 2022 challenged much of the common Western understanding of Russia. How can the world better understand Russia? What are the steps forward for Western policy? The Eurasia Center’s new “Russia Tomorrow” series seeks to reevaluate conceptions of Russia today and better prepare for its future tomorrow.

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Introduction

II. Gazprom in limbo: No substitutes for the lost European market

Chart 1: Gazprom’s self-reported losses.

III. The oil industry: Surviving in difficult Asian markets

IV. The G7 oil-price cap is not working

V. LNG: A lifeline for Putin

VI. The Russian budget: No more super profits

Table 1: Oil and gas revenues of the Russian federal budget

VII. The Global South and the limits of cooperation

VIII. Russia’s diminished ability to use energy as a weapon

Chart 2: Russia’s share of EU energy imports

IX. What is to be done? Recommendations for policymakers

X. Conclusions

About the author

In the two-plus years since Russia’s full-scale invasion of Ukraine, the United States and its allies have imposed approximately two thousand sanctions on Russian corporations, financial institutions, and individuals. But while the sanctions have been broad, sweeping, and in some cases unprecedented, the discussion about their level of efficacy is still ongoing.

This is particularly true for the industries that comprise the lifeblood of the Russian economy—the oil and gas sectors. While Russia’s hydrocarbon revenues have been significantly affected by Western sanctions, this impact has varied significantly across sectors.

Assessing the real impact of sanctions on these vital industries, and calibrating them to have the maximum impact on Vladimir Putin’s ability to continue financing and waging his war of aggression, will require policymakers to understand these nuances—to understand what has worked, what has not, and why.

Primarily, this requires an understanding of how the effect of sanctions has varied between the oil and gas industries. It also requires an examination of other relevant factors, most notably the role of China, other Asian markets, and the Global South in mitigating the negative impact of sanctions. It also requires an understanding of the role liquified natural gas (LNG) has played in Putin’s efforts to evade sanctions.

The impact of sanctions: A brief overview

The impact of Western sanctions differs not only between the oil and gas industries, but also between natural gas and LNG. There is also a significant divergence between the negative impact of sanctions on the Russian oil and gas industries on one hand, and the impact on state budget revenues on the other.

It should be stressed that the decoupling of Gazprom from the European gas market was mostly caused not by the Western sanctions—the European Union (EU) did not introduce an embargo against Russian natural gas as such—but, rather, by Gazprom’s self-imposed cutoff of piped-gas supplies to most EU member states.¹

The Russian natural-gas industry, primarily Gazprom, has struggled with the consequences of decoupling from the EU market, as it lacks a viable business model to compensate for the loss. The oil industry, on the other hand, has managed to weather the sanctions better, albeit with significant loss of revenue due to heavy price discounts in Asian gas markets and sharp increases in the cost of shipping oil to Asia.

The party that has suffered the most from Western sanctions, however, is Russia’s state budget, which saw its revenues from oil and gas decline 24 percent in 2023 compared to 2022.

This has forced the authorities to consider serious tax hikes on the oil and gas industry to compensate for the losses and enable Putin to finance the war in Ukraine. Such a move would hurt investment and could result in subsequent output decline.

While piped-gas exports to Europe have decreased dramatically, Russia continues to export significant amounts of LNG to the EU unabated, resulting in significant revenue. Unlike Gazprom’s piped-gas exports, however, LNG exports are largely untaxed, meaning the government does not receive direct revenues from them. But for reasons that will be discussed in greater detail below, the Russian state has other means to extract rents from LNG exports to finance the war—notably through windfall taxes.

Sanctions and decoupling from European oil and gas markets have also significantly reduced Russia’s ability to use energy as a tool of political pressure against Western democratic countries. However, as will be discussed in greater detail below, this capability has not been eliminated entirely.

In what follows, this report will discuss each of these trends in greater detail, beginning with Gazprom, which has suffered the most serious consequences from Russia’s standoff with the West and faces nothing short of a full reinvention of its entire business model.

Gazprom in limbo: No substitutes for the lost European market

Russia’s natural-gas giant Gazprom has suffered enormously from cutting ties with Europe, formerly its largest market. As noted earlier, the termination of gas supplies to Europe happened not because of sanctions, but due to voluntary actions by Russia. In mid-2022, Gazprom cut off gas supplies to Europe through most of the export-pipeline routes, clearly aiming at creating political and economic problems for EU countries ahead of the 2022–2023 winter season.

The Kremlin’s hopes didn’t materialize. Despite rising gas prices, the EU managed to successfully navigate the winter and, in the process, find alternative long-term sources of gas imports. This allowed Europe to free itself from most Russian piped-gas imports, without even imposing sanctions on Gazprom.

Gazprom’s lost revenue and profits turned out to be enormous.

According to the company’s own reporting, Gazprom’s revenue fell by 41 percent year-over-year in the first half of 2023, while sales profits fell by 71 percent and gas production by 25 percent. In the first quarter 2024, Gazprom reported a net loss of almost $7 billion in 2023, marking its first annual loss in more than 20 years. Moreover, Gazprom’s upstream gas-production base is now isolated because infrastructure connecting its main western Siberian fields with alternative Asian markets is lacking. Gazprom also failed to build any LNG plants in western Siberia, which, before the imposition of sanctions, would have enabled the company to reroute natural gas to alternative markets.

Gazprom does not disclose the estimated construction costs of new pipeline infrastructure to China, but it would probably require at least $100 billion given the company’s experience constructing the existing Power of Siberia pipeline. That pipeline, which connects western and eastern Siberia and also delivers gas supplies to China, is considerably shorter than a proposed new pipeline, known as Power of Siberia-2, which would pipe gas from western Siberia to China. That raises the fundamental question of whether Russian gas supplies to China will ever be profitable.

Gazprom refuses to publish any data on gas-supply prices to China via Power of Siberia, but data published by Reuters, citing obtained internal materials of the Russian government, suggests that the average annual price of piped gas supplied to China was $297.30 per thousand cubic meters (tcm) in 2023 and will be $271.60 in 2024. Prices for 2023 were also not published, but the officially disclosed volume of supply was 22.7 billion cubic meters (bcm), and the cost of Chinese imports of piped gas from Russia was $6.4 billion. Thus, the average 2023 gas-supply price from Russia to China was $282/tcm (in 2020–2022, the price was well below $300/tcm).

This means that Russia is, in fact, most likely selling gas to China at a significant loss. When the contract to deliver gas to China via the Power of Siberia pipeline was signed in 2014, the average gas-supply price was set in the range of $350–380 per tcm. Even at that price level, Gazprom had requested that the Russian government effectively zero out all major taxes for the Power of Siberia project—claiming that the project would not be profitable unless near-total tax exemptions were provided. The exemptions were granted and, as a result, the mineral-extraction and property taxes were forgiven for fifteen years until 2035. In reality, the price of gas supplies to China via Power of Siberia never even reached $300/tcm, and many analysts believe they do not generate any profits.

That suggests that Russian gas supplies to China may not become profitable for the foreseeable future. China is clearly not expected to need additional gas supply until after 2030, and that appears to explain why Beijing is not interested in granting Gazprom any kind of price premium for new gas-supply contracts. Moreover, China has alternatives: domestic Chinese gas production, LNG, and imports of piped gas from Central Asia.

Speaking at the Eastern Economic Forum in September 2022, Vladimir Putin admitted that “our Chinese friends are tough bargainers,” which is why agreeing with Beijing on gas-supply price parameters “is never so easy.” More than a year later, there is still no indication that an agreement on gas supplies via the proposed new Power of Siberia-2 pipeline project is imminent. This is despite Putin’s promise made in September 2022 (and reiterated in March 2023 during a summit with Xi Jinping in Moscow) that Russia and China are “close” to signing a gas contract for Power of Siberia-2.

The lack of agreement on Power of Siberia-2 reflects the fundamental dilemma Gazprom faces: China is just not ready to buy Russian gas at a price that will be profitable for Moscow.

Moreover, the shipment distance for gas produced in western Siberia and shipped via the proposed Power of Siberia-2 pipeline will be significantly lengthier than that of Power Siberia-1, which means that Gazprom would need a significantly higher sales price than even $350/tcm to make any money from gas exports to China. At the very least, gas exports to China will not deliver any notable revenues to the Russian state budget.

Gazprom’s overall business model has been shattered by its decoupling from the European gas market. Most of the company’s profits came from the EU and, with its significantly lower gas prices, Russia’s domestic gas market just can’t deliver comparable profits. Building new gas-pipeline infrastructure to China, as discussed above, would require enormous capital investments, without offering obvious profits. Building a pipeline to deliver gas to India and other South Asian countries doesn’t seem viable given the complicated mountainous terrain and geopolitical challenges with potential transit countries like Afghanistan. Moreover, Gazprom suspended the construction of planned new LNG projects due to lack of access to critical Western technology.

In this situation, Gazprom attempted various measures aimed at containing gas output, expanding domestic gas demand, and seeking customers elsewhere, but with marginal results. It is not difficult to cut gas production given that the bulk of output comes from matured western Siberian fields, with a significant share of low-pressure gas from depleted reservoirs that require booster measures to increase well productivity. In many cases, it is simply enough to cancel additional booster activities to minimize production.

But finding alternative gas markets with comparable profitability to that of the lost European market will inevitably prove challenging. Russian Deputy Prime Minister Aleksandr Novak has formulated an ambitious program aimed at boosting Russian domestic natural-gas demand, including an accelerated program of gasification for Russian regions, the expansion of small-scale LNG, and boosting natural-gas use as engine fuel for the transport sector.

At the same time, Gazprom, through its lobbyists in the State Duma, is actively lobbying for the full liberalization of natural gas prices for domestic Russian consumers, with an exemption for households. But even with such a policy change, Russia’s domestic gas market is not capable of delivering profits even remotely comparable to those Gazprom received from the EU in the past. Also, significant growth in domestic gas prices will impede Russia’s fragile economic recovery, which is why the government will most likely intervene and cap Gazprom’s domestic gas price if it goes too far.

Gazprom is also actively trying to find new export consumers or to boost exports through existing pipelines. But these efforts have also met with little success. For example, Gazprom has signed a new contract with Uzbekistan, but it amounts to just 3 bcm per year, with scant prospects for growth. Since the full-scale invasion of Ukraine in February 2022, Gazprom has also been trying to set up a “gas hub” scheme with Turkey. This is effectively a “gas laundering” operation that involves mixing Russian gas with Azerbaijani or Iranian gas and then reselling the rebranded product to Europe via Turkey. But the project has been stalled due to wrangling between Moscow and Ankara over who would control the hub and trading schemes, as well as over concerns about the EU’s response.

All this leaves Gazprom in limbo for the foreseeable future. The domestic gas market and potential alternative piped-gas export markets will not be able to make up for those lost from the EU market, and the development of LNG exports so far remains blocked due to lack of access to critical Western technology.

This has ramifications for Russia’s budget, as Gazprom was a major source of tax revenue before the invasion of Ukraine. In 2021, the last year when Russia published detailed reporting on budget revenues, Gazprom’s share of federal budget revenues exceeded 7 percent, but it was estimated to be only about half of that share in 2023.² These revenues are not recoverable in the foreseeable future, as Gazprom’s “super profits” from the European gas market were taxed heavily and LNG exports are largely exempt from taxation.

The oil industry: Surviving in difficult Asian markets

The Russian oil industry has weathered sanctions much better than Gazprom has, largely because it doesn’t suffer from the infrastructure limitations that exist in the gas industry. Russian oil can still be shipped via seaports to Asian markets, albeit with discounts and at a higher cost. Additionally, the industry is benefiting from a lighter tax burden that was introduced in response to falling oil prices. However, the government is planning to gradually raise taxes.

Oil output has contracted only slightly as compared to the pre-war period, by 1–2 percent. Russia currently produces about 10.5 million barrels per day (mbd) of crude oil, as opposed to just over 11 mbd before the war.

However, it should be noted that there are no verifiable and detailed public data on actual Russian oil output. We are therefore forced to rely on official aggregated figures. The general assumption among experts is that Russia has reduced its oil output in the past year by approximately 500,000 barrels per day (kbd) according to an agreement on oil-supply cuts within the Organization of Petroleum Exporting Countries Plus (OPEC+), which includes ten non-OPEC members including Russia. The exact figures remain unknown because the Russian government classified oil-production data following the full-scale invasion of Ukraine. But generally, in contrast to the gas industry, Russia has continued to produce oil more or less at pre-war levels.

The Russian oil industry has, however, suffered from significant revenue and profit losses due to the EU oil embargo. From December 2022 through March 2023, for example, Russia’s average monthly Urals crude-export prices have fallen to $48–50 per barrel due to the steep price discounts demanded by Asian consumers.

Russian oil exporters have managed to reduce these Asian discounts. In the second quarter of 2023, Urals oil prices rebounded to $55–58 per barrel. They exceeded $60 per barrel in July 2023 and reached $80 per barrel in September 2023. Overall, Asian price discounts for Urals oil have been reduced to $10–12 per barrel. Since November 2023, after the US Government has exerted some sanctions enforcement pressure on oil shippers and traders, discounts for Russian oil shipped to Asia grew again – they now stand at about $17 per barrel, but the average price of the Russian Urals oil export crude was around $68 per barrel in April 2024, well above the G7 oil price cap .

Oil-price level is not the only parameter influencing the profitability of Russian oil exports to Asia. Another is the significantly higher cost of shipping oil to Asian markets. For instance, there’s a reason why Russia barely exported any crude-oil volumes to India before the full-scale invasion of Ukraine. It takes approximately a month for an oil tanker to travel from Russia’s Black or Baltic Sea ports to India. In contrast, it takes just a few days to ship oil to Genoa or Rotterdam. Shipping oil to India also involves passing through additional bottlenecks, such as the Suez Canal or Bab al-Mandeb Strait, where tankers risk delays due to traffic and incur additional demurrage and insurance costs. Per the author’s estimates (as exact figures are unavailable), the extra costs of shipping Russian oil from Novorossiysk or Primorsk to India vary in the range of $10–15 per barrel, significantly reducing the efficacy of exports to India and other Asian destinations.

Russia has also established a so-called “shadow fleet” of oil tankers with obscure ownership and jurisdiction. It also sought to use third-country intermediaries and traders to sell oil to Asian destinations or even resell it to Europe, circumventing sanctions. But while such schemes may yield revenues for some Russian-affiliated shell companies, these revenues are not very large (just a few dollars per barrel). These profits also do not add revenues to the Russian state budget because oil exports are taxed according to officially available crude-oil price numbers and these shadow operations abroad are not visible to the Russian tax authorities.

A gasoline delivery of Russian energy company Rosneft in northernmost well of Russia. (Rosneft handout via EYEPRESS)

In 2023, Russia adopted a new mechanism of gradually increasing the oil-export price used for taxation, in an apparent effort to force oil companies to negotiate lower discounts with consumers. However, all these accounting tricks do not change the fundamentals of the situation, and paying too much attention to them is a distraction. Russian oil-export revenues throughout 2023 have largely been determined by the overall dynamics of the international market, and the declining discounts for Russian crude resulted from markets becoming significantly tighter due to the Saudi-led OPEC+ oil-output cuts announced in the spring of 2023.

Due to rebounding export prices, Russian oil revenues have normalized in the third quarter of 2023, following a sharp plunge early in the year. Nevertheless, it is also clear that rerouting oil exports to Asia has created additional cost burdens for Russian oil exporters. Another significant issue involves the relations between Russian oil majors and the Western oilfield-services companies working in oil-reservoir management, such as Baker Hughes, Halliburton, Weatherford, and SLB. Some of these announced they were leaving Russia following the full-scale invasion of Ukraine.

It is beyond the scope of this report to discuss which of these oilfield-services companies have kept their word and actually left Russia. What is important is that they possess unique technologies for oilfield-reservoir management and enhancing the productivity of oil wells, which can’t be substituted by Russian, Chinese, or other third-party technologies and know-how. Most of the oilfield stock of Russian oil companies is matured and depleted fields with difficult reservoirs in western Siberia, the Urals, and other regions. Therefore, using cutting-edge Western technology remains critical to maintaining the productivity of oil wells and overall levels of oil output.

At the end of the 1990s and the beginning of the 2000s, the massive outsourcing of Russian oilfield services to these Western companies led to dramatic increases in productivity. For example, the average Russian oil well increased production from approximately fifty-five barrels per day in 1995 to more than seventy-five barrels by the mid-2000s, a productivity growth of more than one-third. Should Western oilfield services completely depart Russia, this may result in comparable loss in average well productivity and, as a result, overall oil production. There are, however, strong indications that at least some of the Western oilfield-service companies continue to work with the Russian oil industry, reneging on their promises to leave.

The G-7 oil-price cap is not working

It is clear that the oil-price cap the Group of Seven (G7) imposed on Russia in September 2022 is not working. Russia has continued to easily sell oil exported via the Eastern Siberia-Pacific Ocean oil pipeline to China at a price well above the $60-per-barrel limit, effectively ignoring the price cap. Moreover, the Russian Finance Ministry reports that even the price of Urals crude shipped through Black and Baltic Sea ports has exceeded $60 per barrel. As said above, as of March 2024, Russia continued to export crude oil priced well above the $60 cap. When the oil-price cap was introduced, the G7 countries lacked sufficient capacity and legal authority to monitor the thousands of shipping, trading, and insurance transactions Russian oil-exporters use—particularly those outside the G7’s jurisdiction.

As a US Treasury Department press release put it, the Treasury Department simply hoped that “nonparticipating countries’ goal is to get the lowest price for buying oil, and the price cap will give them additional leverage in their negotiations with Russia.” However, this did not happen. When market prices went up, Russia was able to sell its crude above the price cap, switching mostly to traders, shippers, and insurers operating outside the G7 regulatory jurisdiction. Widespread price-cap evasion schemes are thriving due to a loose regulatory framework that does not require insurers and shipowners to know any pricing information about the oil shipped.

It is questionable whether the G7 will be able to enforce its oil-price cap at all, given these circumstances. At the very least, G7 countries will need to significantly beef up their sanctions-enforcement capacity. Hundreds of additional employees will be needed to monitor the thousands of transactions related to Russian crude-oil exports to ensure compliance with the oil-price cap. Unless these additional staffing measures are taken, and are accompanied by relevant legal action against companies involved in breaching the oil-price cap, enforcement will just not happen. It remains an open question whether the G7 countries will ever be able to do anything about Russia’s “shadow tanker fleet” or other shell companies engagement in trading, shipping, and insurance transactions, which are operating fully outside the G7 regulatory jurisdiction. It was the EU oil embargo, and not the price cap, that truly worked against Russian oil exports.

LNG: A lifeline for Putin

While the EU nearly stopped purchasing piped gas from Gazprom following the full-scale invasion of Ukraine in February 2022, Russia’s LNG exports to Europe in 2023 surged by about 38 percent as compared to the pre-war year of 2021; the EU imported about 22 bcm of Russian LNG in 2023. Remarkably, after the United States, Russia is Europe’s largest supplier of LNG.

Despite Russia’s increasing presence on the LNG market, Gazprom is not involved. The key Russian LNG exporter is Novatek, the country’s second-largest natural-gas producer. In 2022, Novatek exported more than 76 percent of the LNG produced by its Yamal LNG project to Europe. Overall, Russia currently exports more than 50 percent of its LNG to Europe, compared to just 39 percent in 2021.

These exports are not a major source of budget revenue for Russia as Novatek’s LNG production and exports are largely untaxed, enjoying a twelve-year exemption from mineral-extraction taxes and export duties. Nevertheless, such massive LNG exports to Europe are a major source of revenue for Russia, totaling up to 10 billion euros per year, and can be used by Putin to finance the war against Ukraine. For example, the Russian government has raised the profit tax on Novatek from 20 percent to 32 percent for 2023–2025. The draft budget for 2024 also contains hints that the authorities may impose certain one-time payments on oil and gas companies, including Novatek, in 2024. The European Union is not currently considering sanctioning Russian LNG, which means that the revenue flow will likely continue uninterrupted in 2024.

Novatek also managed to continue with a massive project called Arctic LNG-2 (ALNG-2), despite some initial difficulties accessing critical Western technology due to sanctions. Western companies such as Linde, Technip, and Baker Hughes left the project after February 2022, but Novatek managed to either assure the supply of previously contracted equipment or to find alternative Chinese suppliers. However, after sweeping US sanctions were introduced against the ALNG-2 project in November 2023, the project was effectively brought to a halt, which undermines Russia’s plans to expand LNG exports in the coming years and show the effectiveness of individual sanctions against specific oil and gas projects.

The Russian budget: No more super profits

Despite rebounding oil prices and the G7 oil-price cap not working, Russian oil and gas budget revenues were significantly down in 2023, contracting by 23.9 percent year-over-year. By comparing pre-war figures from 2021, the contraction of oil and gas revenues becomes even more visible. While the average oil price in 2021 and 2023 is comparable, oil and gas budget revenues have fallen precipitously. In 2021 they were 6.8 percent of GDP and accounted for 35.6 percent of total budget revenues; in 2023 they were just 5.3 percent of GDP and 30.9 percent of total budget revenues (see Table 1).

While oil-export revenues recovered in the second half of 2023, as discussed above, gas-export revenues appear lost for the foreseeable future. LNG revenue exports are not sufficient to compensate for the loss of piped-gas exports to the EU. Moreover, rerouting of oil shipments to Asia reduces the profitability of oil exports. It is, therefore, reasonable to expect that Russian oil and gas revenues will be significantly depressed due to Western sanctions and Gazprom’s decoupling from the European gas market. And barring a sharp rise in oil prices, these super profits will not return.

Russian budget revenues from oil and gas fell 55–58 percent in the first two quarters of 2023 as compared to the same period in 2022. In the third quarter of 2023 they recovered to nearly 2022 levels, although this is largely due to higher international prices resulting from output cuts announced by Saudi Arabia in the spring of 2023. Had Saudi Arabia maintained its previous levels of oil production, Russian revenue losses would have been significantly higher.

According to the 2024 federal budget projections, Russian government is nevertheless forecasting 29.8-percent year-over-year growth in oil and gas revenues in 2024, despite not projecting a significant rise in oil prices. The draft budget projects average oil prices for 2024 at $71.30 per barrel. The government has hinted that it may impose a one-time windfall tax on the oil and gas industry, although the nature of this tax remains unclear. Such a tax, combined with the increased cost of oil shipments to Asia and the loss of productivity due to the lack of access to Western technology, will have a negative impact on upstream capital investments, putting additional pressure on the industry.

The Global South and the limits of cooperation

After February 2022, Russia placed a lot of hope in developing energy cooperation with China, India, and the Global South. More than two years in, these hopes appear to be in vain. Investors do not appear interested in entering the Russian oil and gas sector, and the switch to Chinese technology and equipment has proven significantly more costly than working with Western companies.

Russia had high hopes that exiting Western oil and gas majors would be replaced by investors from the Global South. But thus far, there have been no significant oil and gas investments from China, India, or the Middle East since February 2022. This is largely due to fears of secondary sanctions and excessive wartime regulations, which increase the risks of investing in Russian assets.

Notably, Chinese and Indian companies were not rushing to invest in Russia even before the full-scale war. According to data from the Russian Central Bank, the total accumulated foreign direct investment (FDI) in Russia from all Chinese investors across all sectors totaled just over $3 billion at the end of 2021. For investors from India, the total was just $600 million. And no new FDI from the Global South has been recorded since.

Moreover, some Chinese companies even suspended certain operations in Russian oil and gas and related industries. The Chinese petroleum and chemicals firm Sinopec, for example, suspended talks with the Russian petrochemical company Sibur regarding a major investment and gas-marketing venture in the spring of 2022.

Switching to Chinese technologies and equipment to replace the departing Western technology companies has also proven costly. Novatek, for example, has reported a 17-percent (nearly $4-billion) increase in capital expenditures for the Arctic LNG-2 project due to switching from Baker Hughes turbines to Shanghai Electric equipment. Similar cost increases and losses in productivity can be reasonably expected across the Russian oil and gas industry.

China, India, and the countries of the Global South seem more interested in taking advantage of the current situation and buying Russian energy at a discount than they are in investing in Russia’s oil and gas industries.

Russia’s diminished ability to use energy as a weapon

Decoupling of Western markets from Russian oil and gas has seriously undermined Moscow’s ability to use energy as a weapon against Western democracies. According to the European Commission, the Russian share of EU imports of petroleum oils fell to 3.5 percent in the fourth quarter of 2023, down from 24.8 percent in the fourth quarter of 2021. The share of piped natural gas fell to 12.7 percent from 48.0 percent across the same period. This all significantly reduces Russia’s leverage over European countries through oil and gas supplies.

Some EU countries, most notably Hungary and Slovakia, continue to buy Russian oil and gas. Not surprisingly, these countries remain the least favorable to keeping sanctions against Russia and aiding Ukraine. In Slovakia, this became even more visible when the pro-Putin politician Robert Fico became prime minister after the October 2023 elections, but Hungary and Slovakia remain outliers in the EU.

Central Asian energy exporters, on the other hand, are much more vulnerable to Russia’s energy blackmail. Kazakhstan, which exports about 80 percent of its crude oil through Russian territory and seaports via the Caspian Pipeline Consortium, is particularly vulnerable. Establishing an alternative export route to Europe will be difficult for Kazakhstan, as it would require investing in and developing a tanker fleet in the Caspian Sea. In 2022, Russia threatened to shut down the Caspian Pipeline Consortium on regulatory grounds in an apparent effort to assure Kazakhstan’s loyalty amid the international backlash over Ukraine.

What is to be done? Recommendations for policymakers

How can Western policymakers make sanctions against Russia’s oil and gas industry more effective?

First, it is important to understand that Russian oil-export revenues have been rebounding recently not because the EU oil embargo is ineffective. In fact, the embargo is working. It has led to a sharp increase in costs of shipping Russian oil to consumer markets in Asia (more than $10 per barrel, according to the author’s estimate). It has also led to price discounts, which remain at levels above $10 per barrel. The key factor contributing to increasing Russian revenues from oil exports is the spring 2023 OPEC+ decision to cut oil output. Therefore, one key focus for Western policymakers should be to put diplomatic pressure on OPEC members and other oil-producing states to increase oil output.

The EU should also tighten sanctions against Russian oil transshipment through its territorial waters. This would further complicate the logistics of rerouting Russian oil to Asian markets. This matters, because the bulk of Russian oil is still exported via Baltic and Black Sea ports, as direct pipeline infrastructure to Asia is insufficient and its expansion requires huge investments.

The G7 oil-price cap on Russian oil is clearly not working. Several steps would, at least partially, increase the efficiency of the price cap, including

increasing the number of professional staff permanently dedicated to monitoring Russia’s export-oil shipments (currently, the job is mostly done by outside experts, journalists, and investigators, while the tens of thousands of transactions involved require regular monitoring and analysis to uncover price-cap evasion schemes);
introducing secondary sanctions against third-country insurers, traders, and shippers who are helping Russia evade the price cap; and
improving the mechanism of “attestation” of transactions ensuring compliance with the price cap. This involves assuring that shipowners and insurers are provided with sufficient pricing information by the buyers and sellers of the Russian crude to make sure that the oil is sold below the price cap.

Regarding piped-gas imports from Russia, the European Union should keep asking the EU member states that are still buying gas from Russia for specific plans to phase out Russian imports. Countries like Italy, which continue to receive certain volumes of Russian piped gas, are promising to end Russian gas imports quite soon, others, like Hungary and Austria, continue unrestricted imports of Russian gas, reaching and even exceeding pre-war import levels. At the same time, these countries have made little progress in renewable-energy production or reducing gas demand. EU unity on singling out Gazprom’s gas supplies is essential to continue minimizing Putin’s export revenues.

The EU should also unequivocally reject the import of natural gas from the so-called “energy hub in Turkey.” This project is nothing more than an attempt to launder Russian gas supplies by mixing them with gas from other producers like Azerbaijan and Iran. Turkey should be sent a clear message that laundering Russian gas will not be tolerated. Any contracts for gas supplies via Turkey to the EU should be concluded directly with suppliers, and not through opaque intermediary schemes that might assist Russia.

The EU also needs a comprehensive policy on LNG imports from Russia. These imports may be necessary in the short term to fill the gap left by the cessation of Russian pipeline-gas imports. Nevertheless, the surge of Russian LNG imports to the EU in 2022–2023 is not normal and generates significant revenues for Russia (which may also be used to finance the war through emergency windfall taxation). The EU needs a clear schedule to phase out Russian LNG imports. It should also accelerate its efforts to develop offshore natural-gas production, particularly in the Mediterranean and Black Seas, as an alternative to Russian gas in the medium and longer term.

The G7 countries should also conduct a comprehensive critical oil-and-gas technology review. Such a review would identify critical technologies Moscow still has access to that may assist Russia in sustaining its oil and gas exports and evading Western sanctions. It could also provide policy recommendations for additional sanctions, including secondary sanctions against third countries where appropriate.

Conclusions

It is reasonable to conclude that sanctions have had a significant impact on the Russian oil and gas industries and the budgetary revenues that come from them. And it is wrong to conclude that sanctions are not working—they are. However, much more work must be done to enhance the effectiveness of sanctions.

Also, for the purpose of setting realistic goals and expectations, it is important to understand that the Russian oil and gas industries and Russia’s public finances are too strong and resilient to simply collapse under the weight of sanctions. They haven’t collapsed yet, and probably won’t in the foreseeable future. But they are suffering enormous difficulties due to sanctions and decoupling from the Western energy markets. Over time, this is likely to result in further loss of investment, output, efficiency, and revenue.

About the author

Vladimir Milov is a Russian opposition politician, publicist, economist, and energy expert, and recently served as an economic and international affairs adviser to the late Russian opposition leader Alexey Navalny. He is also vice president of the Free Russia Foundation, an international organization supporting civil society and democratic development in Russia based in Washington, D.C. From 1997 to 2002, Milov had worked with the Russian Government, including as Deputy Energy Minister in 2002. He was the author of the concept of breaking up and unbundling Gazprom vetoed by Vladimir Putin. Later, Milov became one of the major public critics of Vladimir Putin, working closely with late opposition politician Boris Nemtsov, and later with Alexey Navalny. He is a research associate at the Wilfried Martens Centre for European Studies in Brussels, vice president of the Free Russia Foundation (Washington, D.C.). Milov is currently based in Vilnius, Lithuania.

The Eurasia Center’s mission is to promote policies that strengthen stability, democratic values, and prosperity in Eurasia, from Eastern Europe in the West to the Caucasus, Russia, and Central Asia in the East.

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There’s an alternative to Russian-based trade routes—but it needs support from the US, EU, and Turkey

Arnold C. Dupuy — Wed, 22 May 2024 13:05:41 +0000

Leaders looking for an alternative to trade routes that flow through Russia may already have a potential solution available.

Currently, the primary land-based trade route between Europe and China is the Northern Corridor, a rail-freight system that runs through Russia with a cargo capacity of over one hundred million tons. But following Russia’s full-scale invasion of Ukraine, the Northern Corridor has become a political and financial liability, particularly for NATO allies and partners anxious to reduce dependence on Russia and countries in the West who are reluctant to support Russia and aiming to counter the Kremlin’s adventurism.

In searching for an alternative to the Northern Corridor, one option is the Trans-Caspian International Transport Route (TITR), otherwise known as the Middle Corridor, a multimodal network of railways and ports that begins in China and runs across Central Asia, the Caucasus, and the Black Sea before reaching Europe.

Trade along the Middle Corridor grew from 530,000 tons in 2021 to 2.3 million tons in 2023. In the first six months of 2023, the TITR had reported a 77 percent increase in tonnage over the same time period in 2022, while Northern Corridor tonnage fell by 56 percent. The World Bank estimates with adequate infrastructure investment, TITR trade volume could be as high as eleven million tons by 2030. It is no coincidence that the dramatic increase in the Middle Corridor, along with the precipitous drop in Russian-based freight traffic, has occurred in the period following Russia’s full-scale invasion of Ukraine.

While the TITR may offer a reasonable solution for reducing trade along the Northern Corridor, there are many challenges.

Notably, the TITR’s infrastructure isn’t very modern or integrated across borders, meaning its ability to handle increased freight volume is limited. One source even reported that TITR has only 5 percent of the Northern Corridor’s capacity. Thus, it will be necessary to build out and expand the system. The TITR also suffers from long lead times, often exceeding fifty days. It also presents higher costs: The multimodal nature of the route (rail and seaborne) requires costly transfers of loads from one method of transportation to another, while the number of countries along the route increases administrative costs. These challenges also reduce efficiency and increase shipping time. In fact, these delays and higher costs have subsequently pushed shippers back to the Northern Corridor or to seek alternative maritime routes to the Middle Corridor.

Several countries along the route—notably Azerbaijan, Georgia, Kazakhstan, and Turkey—are stitching together an integrated rail and shipping network that transcends this politically volatile and geographically challenging region. On March 31, 2022, the governments of these countries signed a declaration to improve cooperation along the route. On May 11, 2022, rail executives from Azerbaijan, Georgia, Kazakhstan, and Turkey met in Ankara to discuss the Middle Corridor project. There, they approved an action plan that included measures to modernize the trade network, harmonize tariffs and trade policies, and make cross-border interactions more efficient.

Within a year after the 2021 reinvigoration of the Turkic Council (now called the Organization of Turkic States), Azerbaijan, Turkey, and Kazakhstan signed the Baku Declaration, which was designed to reinforce “existing coordination between the three countries and strengthen regional connectivity.” Kazakhstan provides the longest rail access, and its Caspian port city of Aktau will be expanded to meet demand. On the western side of the Caspian Sea, Azerbaijan’s Baku port—supported by an expansion and modernization program—will forward freight to Georgia and Turkey.

The Baku-Tbilisi-Kars (BTK) railway, also called the “Iron Silk Road,” plays an important role in moving loads westward from the Caspian Sea. Opened in October 2017, BTK travels between Azerbaijan and Turkey via Georgia, a connection that had been closed since the early 1990s due to the Nagorno-Karabakh conflict. Another critical component in the TITR is Georgia’s Black Sea coast, specifically the ports of Batumi, Kulevi, Poti, and Supsa, which provide the route’s final sea-based segment. There are modernization projects underway here, specifically in Poti’s port facilities, and Georgia is cooperating with Azerbaijan and Kazakhstan to develop a new shipping route between Poti and Romania’s Constanța Port. The fifth major port along Georgia’s Black Sea coast, Anaklia, is currently being revitalized, and at one point (according to plans) was slated to be the largest port in the Black Sea.

Western countries have shown interest in developing the Middle Corridor. The route would help provide the infrastructure necessary for the European Union’s economic diversification strategy. In 2022, Danish shipping firm Maersk and Finnish company Nurminen Logistics began increasing their presence along the route. Austria’s OBB Rail Cargo Group has also shown interest in expanding its contribution to east-west trade via the TITR. And at the October 2023 Germany-Central Asia Summit, Berlin announced it will help develop the Middle Corridor under the EU Global Gateway Initiative; the EU also announced that financial institutions have committed to investing ten billion euros in support. The Germany-Central Asia Summit is a sign that the transatlantic community is finally recognizing the region’s strategic importance; Washington has also begun to make such a recognition, in the 2024 National Defense Authorization Act’s Black Sea Security and Development Strategy and in the US Congress passing the most recent package of US support to Ukraine.

China has also shown interest in the Middle Corridor. For example, China had invested in an earlier Anaklia revitalization project when Mikheil Saakashvili was president of Georgia—although subsequent administrations shelved it. This has not lessened Anaklia’s appeal, as Beijing’s interest in the Middle Corridor complements its Belt and Road Initiative (BRI). Indeed, China contributed $1.5 billion for an industrial park at Alat, adjacent to the Port of Baku, in Azerbaijan. Investments to strengthen the Middle Corridor’s infrastructure provide Beijing with greater political and economic influence in Central Asia and the South Caucasus. Russia has tolerated this foray into its “near abroad” for now, likely because a chastened and dependent Kremlin is reluctant to disrupt its burgeoning partnership with Beijing. However, considering Russia’s sensitivity to great-power intrusions into what was once part of the Soviet Union, one can only speculate how long before there is some pushback from Moscow.

While Russia is viewed as the immediate threat to regional stability, the Middle Corridor’s stakeholders are also distrustful of Beijing because of the poor press about the BRI. Thus, there is an opportunity for the private and public sectors in the United States, EU, and Turkey to invest in building resilient supply chains with clear strategic benefits, notably a politically acceptable alternative to the Northern Corridor.

Further support for the TITR from Washington, Brussels, and Ankara would send a strong message to the stakeholder nations as well as to Beijing and Moscow. This would also demonstrate to the regional nations that long-term stability and economic growth can be achieved through closer cooperation with NATO countries and the EU. The United States and its allies have an opportunity to positively impact security and engender goodwill along the Middle Corridor through enhanced trade and infrastructure investment.

Arnold C. Dupuy is a nonresident senior fellow at the Atlantic Council IN TURKEY, a faculty member of the US Naval Postgraduate School, and chair of the NATO Science and Technology Organization’s SAS-183, “Energy Security Capabilities, Resilience and Interoperability.” Follow him on LinkedIn.

The views expressed in TURKEYSource are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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Webster quoted in the Financial Times, CNN, AFP, and Yahoo News on US-China tariffs

smeadows — Tue, 21 May 2024 15:04:58 +0000

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Garlauskas, Webster, and Verges quoted in The Economist on article on China’s support for Russia

smeadows — Tue, 14 May 2024 18:53:29 +0000

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What to know about Biden’s new tariffs on Chinese EVs, solar cells, and more

Atlantic Council experts — Tue, 14 May 2024 14:29:27 +0000

It’s open season on seagulls. On Tuesday, the Biden administration announced sweeping tariff increases on China across a range of strategic industries, including quadrupling tariffs to 100 percent on electric vehicles (EVs), such as the low-priced Seagull EV from Chinese automaker BYD. Other industries that the new tariffs impact include lithium-ion batteries, semiconductors, aluminum and steel, solar panels, and medical products. The changes are designed to take aim at China’s nonmarket trade practices and overcapacity, while boosting US industries. To decipher what’s behind the move and what to expect next, we put five burning questions to our experts.

1. What is the Biden administration trying to accomplish with these tariffs?

The Biden administration’s objectives are threefold. First, it seeks to foster the growth of the fledgling US clean energy complex against Chinese rivals, many of which have received vast subsidies from national, provincial, and local governments.

Second, and relatedly, the tariffs aim to ensure that clean energy technologies are not dominated by a sole supplier. This action reduces the probability that a single entity can establish control over vital technologies such as EVs, lithium-ion batteries, and other products.

Third, the tariffs may slow China’s development of certain dual-use technologies that have latent military potential. Lithium-ion batteries, for instance, are used for not only EVs and electricity grid storage, but also for military applications such as diesel-electric submarines, aerial drones, and unmanned maritime platforms.

The tariffs will, all else being equal, curb China’s industrial capacity, which could be repurposed for its defense industrial base. They will also reduce the probability that China will be the first to make technical or commercial breakthroughs in battery technologies, such as solid-state batteries, that could be military game-changers.

—Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center, where he leads the center’s efforts on Chinese energy security.

Fundamentally, Biden administration officials are trying to avoid repeating the mistakes of past decades when, they believe, the United States (and its allies) did not do enough to counter China’s unfair trade practices until it was too late and Chinese products flooded markets and cost jobs. Now they want to get ahead of the curve, especially on EVs with a staggering 100 percent tariff. It’s worth noting that only 1 percent of all US EV imports currently come from China—so this is about the future, not about now.

It’s not that China hasn’t been creating overcapacity for decades; it’s that the sectors China is now doing it in are considered critical for national security. That is what is driving so much of this reaction.

—Josh Lipsky is senior director of the Atlantic Council’s GeoEconomics Center and a former adviser to the International Monetary Fund.

The Biden administration has made several large strategic bets in industrial policy around semiconductors, EVs, solar, and infrastructure investment. As the administration has sought to onshore productive capabilities throughout these supply chains, one looming concern has been overcapacity and the potential for gluts of cheap imports shuttering newly built US plants. In many respects, these tariffs are preventive measures to guard against that possibility. By taking preventive measures, rather than post hoc remedies, the administration may also be trying to signal to the private sector that any investments they make in onshored critical supply chains will be protected from wild price swings. In this regard, this slate of tariffs attempts to make the long-term math on supply chain resilience work.

—Sarah Bauerle Danzman is a resident senior fellow in the GeoEconomics Center’s Economic Statecraft Initiative.

The Biden administration has two main goals. The first is protecting infant or currently undeveloped industries supported by the Inflation Reduction Act and other efforts. The second is protecting US critical supply chains, such as for personal protective equipment, the importance of which became clear during the COVID-19 pandemic.

Posing the announcement as the outcome of the long-running, multiyear investigation under Section 301 of the 1974 Trade Act, the Biden administration believes that its tariffs will be much more effective than Trump-era tariffs, which the Biden team believes inadvertently caught intermediate goods that hurt US producers. These tariffs will be more targeted to the two goals above. For example, semiconductor tariffs are expected to be on imports of chips themselves, not final products that include semiconductors.

—David Hathaway is a nonresident senior fellow at the Atlantic Council’s Global China Hub and principal for China at the Asia Group.

2. What will be the practical effect on the affected industries in the United States and China, and on the fight against climate change?

In the short term, this will likely raise the price of key clean energy goods, or at least prevent these goods from decreasing as quickly in price as they otherwise would. However, emerging markets could very well be flooded with extremely cheap clean energy items from China, which could help them in their energy transition, but might also be seen as threatening from the perspective of the United States.

—Sarah Bauerle Danzman

Due to existing high tariffs, there is virtually no trade in EVs between the United States and China. But China is, by far, the largest exporter of lithium-ion batteries to the United States. Chinese imports are especially consequential for grid storage that complements intermittent solar power. Consequently, and depending on details of the tariffs, US efforts to decarbonize its grid could slow down.

Certain critics of the tariffs will likely decry their impact on the US electricity grid. But the reality is it’s too soon to say how the tariffs will impact the global fight against climate change, in either the short term or the long term. In the short term, higher US tariffs will divert certain clean energy products to other markets, including China’s own domestic market. It’s possible that short-term trade diversion could actually deliver a higher environmental return on investment, given global carbon emission patterns. For instance, deploying solar and battery storage projects in certain coal-addicted Chinese provinces would deliver greater climate benefits than, say, installing more clean energy capacity in California. Over the long term, the tariffs could deliver climate benefits by preventing a single country from forming its own clean energy cartel. The Chinese government has a long history of using economic coercion to achieve its desired political ends. It is naïve to believe that Beijing would not exercise this same leverage in certain clean energy fields.

—Joseph Webster

It’s worth noting that tariffs on several major ticket items, such as lithium-ion batteries, don’t kick in until 2026. This gives some adaptation time but also signals that the United States doesn’t think this policy will actually change China’s behavior.

—Josh Lipsky

There will likely be impacts to affected US industries, which could indeed complicate US efforts on climate change. The announcement included tariffs on some batteries, for example. For China, the tariffs, if effective, may blunt China’s ability to trade in products seeing heavy overcapacity, although Chinese producers will likely seek to shift to other markets, including in Europe. (See more below.)

—David Hathaway

3. How will this move affect the broader economies of both countries?

Tariffs on Chinese EVs will have comparatively little impact since US consumers are not buying many Chinese EVs. Economic impacts are more likely in other sectors in which replacements for Chinese products are considerably more expensive. However, the administration likely believes that the tariffs are necessary to support its goals to protect key industries, increase capacity via friendshoring, and secure critical supply chains.

—David Hathaway

Tariffs do create deadweight loss, so we can expect them to exact some costs on the US economy. The Biden administration has insisted that this approach to tariffs is more targeted and less inflationary than the across-the-board tariffs that former President Donald Trump has proposed. The tariffs have a couple of years to set in, which may help with adjustment. And, as mentioned above, the certainty in price protection that these tariffs afford producers could induce new investments in the US supply chains for these items.

—Sarah Bauerle Danzman

4. How might China react?

China won’t be shocked—in fact, it’s likely that US Treasury Secretary Janet Yellen and US Secretary of State Antony Blinken previewed this announcement on their respective trips there in April. China will, as is typical, play a long game—and accelerate its own reshoring policies as it tries to expand production in a range of countries, including Mexico. The United States is aware of that strategy, and that’s why you’ll see a lot of shuttle diplomacy between Mexico City and Washington ahead of the United States–Mexico–Canada Agreement renewal in 2026.

—Josh Lipsky

China has likely already baked such actions by the United States into its thinking. It must already understand that actions on trade are to be expected in the run-up to the US presidential election in November. However, the Biden administration is certainly expecting some form of material retaliation, likely below a level that could be considered escalatory. There is an awareness that one Chinese industry response may be to shift production to places such as Southeast Asia and Mexico. I understand that the US government is working actively with partners to prevent this.

—David Hathaway

I expect the Chinese government to consider more export controls on raw and processed critical minerals. The problem is that this might create short-term supply constraints for the United States. But the Section 301 tariffs cover some of these minerals, and so such moves will only further help the administration achieve its goals of independence from Chinese supply.

As David mentioned, Chinese companies are likely to try to invest in third markets to serve the United States and other protected markets. Attempts to build EV battery plants in places with trade agreements with the United States, such as Mexico, will further push Washington to engage with partners to shore up their investment regulatory regime. The United States may also start thinking about how to address ownership and control issues in its supply chain, especially since rules of origin through which tariff rates are set are based on the location of production, rather than on who ultimately owns that productive capacity.

—Sarah Bauerle Danzman

5. How does the US approach compare with Europe’s?

That’s the million- or trillion-dollar question. If Europe and the Group of Seven (G7) countries match or mirror US policies at the summit in Italy in June, it may cause Beijing to realize that this time is different. On the other hand, if Europe hedges coming out of its own antidumping review, it could affirm China’s view that their challenge is primarily with the United States, not the rest of the advanced economies. The next few weeks will be telling.

At the same time, the United States is not only going to rely on the G7 here. Watch for coordination with countries that have been skeptical of the United States, including Brazil, because they also share a concern about Chinese overcapacity.

—Josh Lipsky

I really hope that the United States provided ample notice to Brussels about this move. The Europeans are currently undertaking their own anti-dumping review of Chinese EVs, and their market is far more vulnerable to Chinese EV imports than the United States’.

Europe is a bit handicapped compared to the United States when it comes to a more forceful use of tariff policy. The Biden tariffs arising from this Section 301 review are quite prospective in nature; they are anticipating a problem and applying tariffs preventively, particularly with respect to EVs. Additionally, the United States is able to pass well-funded industrial policy measures to further aid domestic production. The European Union (EU) has traditionally been more attentive to World Trade Organization rules around when and how to apply tariffs, and generally needs evidence of actual, realized harm before it acts. This means that EU producers will have to be hit hard by Chinese imports before the EU is likely able to act to protect them. Additionally, the intra-EU politics of industrial policy is much more complicated than in the United States, which further limits its scope of action.

—Sarah Bauerle Danzman

The tariffs may force Brussels’ hand, since higher tariffs in the United States on Chinese goods could result in substantial trade diversion to Europe. Brussels will have to act quickly, either to put its own tariffs in place or to accept a flood of Chinese-made products.

—Joseph Webster

The post What to know about Biden’s new tariffs on Chinese EVs, solar cells, and more appeared first on Atlantic Council.

What US tariffs on Chinese batteries mean for decarbonization—and Taiwan

Joseph Webster — Mon, 13 May 2024 21:29:39 +0000

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On one hand, lithium-ion (li-ion) batteries, including those made in China, the world’s largest li-ion manufacturer, are useful for decarbonizing the US grid, improving the economics of solar deployment, and providing a key input for electric vehicles. On the other hand, ceding a new and important clean tech industry could pose long-term economic damages. Allowing China to dominate this sector hollows out US manufacturing capacity and know-how, while giving China’s battery complex the opportunity to grow in capacity and provide synergies with its submarine and drone-making capabilities, which are increasingly important in modern warfare. This rise in industrial capacity could prove significant in military contingencies involving Taiwan.

Managing these battery dilemmas will be challenging, but not impossible. Most immediately, the United States and its allies, friends, and partners should rigorously investigate where Chinese-made batteries do—and, significantly, do not—pose security risks. Most importantly, however, they should accelerate development of their own battery supply chains.

Chinese li-ion battery exports and US decarbonization objectives

China’s global lithium-ion battery exports reached $65 billion in 2023, up nearly 400 percent from pre-COVID levels in 2019. More than half of these 2023 exports were shipped to the European Union and the United States-Mexico-Canada (USMCA) free trade zone.

Chinese li-ion battery exports are largely bound for the European Union and North America.

Source: PRC General Administration of Customs, author’s calculations

Chinese battery exports to USMCA are highly correlated with EV manufacturing capacity and solar installed capacity, which are often paired with battery energy storage systems. In North America, these facilities are overwhelmingly concentrated in the United States, which accounts for the lion’s share of USMCA’s lithium-ion battery imports, according to Chinese trade statistics. (Note: the United States and China report slightly different total trade figures, due to reporting lags and the timing of international shipments.)

Chinese exports to USMCA are largely routed through the United States.

Source: PRC General Administration of Customs, author’s calculations

According to the US Census Bureau, in 2023, the United States directly imported $13.1 billion in lithium-ion batteries from China, accounting for 70 percent all US li-ion battery imports in 2023, as measured in value. US li-ion imports are split between storage and batteries for electric vehicles.

US lithium-ion batteries derive primarily from China, both directly and indirectly.

Source: US Customs Data, author’s calculations

It’s worth noting that China’s share of all US li-ion batteries is understated in official statistics, in both absolute and relative terms. Chinese battery companies, as well as big battery players based in South Korea and Japan, often have manufacturing facilities in third-party countries that export to the United States.

In other words, China is currently an important player in US decarbonization, particularly when it comes to energy storage. China exported $10.8 billion of Li-ion storage batteries to the United States in 2023, accounting for 72 percent of all US imports of the product.

Chinese imports are particularly important in the storage market.

Source: US Customs Data, author’s calculations

These li-ion storage batteries are useful for decarbonizing the US power sector and complementing solar generation. As recent research shows, California and other western states have significantly increased their uptake of storage batteries on the grid, enabling solar’s percentage share of all generation to rise, advancing state and national decarbonization objectives.

The security risks from China’s battery complex

While mainland China’s li-ion batteries are useful for decarbonization, its battery complex poses often-overlooked security risks, especially in the event of a contingency over Taiwan. Batteries figure increasingly prominently in military affairs, including for diesel-electric submarines and unmanned platforms. Critically, US restrictions on Chinese li-ion batteries or of electric vehicles, another end use of li-ion batteries, will limit China’s industrial capacity that could readily be repurposed from the civilian industry to its defense industrial base. Just as crucially, by diminishing China’s battery business, US tariffs could constrain Beijing’s ability to secure technological breakthroughs with military uses.

China’s battery complex complements its military capabilities in multiple ways. Take aerial drones, which often employ lithium-ion batteries for propulsion. These weapons are already a critical element in Russia’s full-scale invasion of Ukraine, as both sides are estimated to field at least 50,000 first-person-view suicide drones per month.

Drone technology could play an even larger role in any confrontation over Taiwan. Mainland China’s industrial capacity in aerial drones and batteries could loom large in any confrontation, as its manufacture of dual-use drones dwarfs production seen in both Ukraine and Russia. There are limitations to the role batteries could play in the aerial domain due to constraints in energy density and range. Still, advances in battery technology could increase the potency of aerial drones in a potential Taiwan contingency.

Batteries are also useful for unmanned underwater vessels, unmanned surface vessels and, critically, conventional (i.e. non-nuclear powered) submarines. Diesel-electric submarines are powered by batteries charged by onboard diesel generation. Those with li-ion batteries offer performance improvements over those with lead-acid batteries, including quieter operations, and higher speeds for sprinting and cruising. Japan’s Maritime Self-Defense Force is the only navy known to operate diesel-electric submarines with li-ion batteries.

But the possibility that China could also develop li-ion submarines is a concern. Its battery complex has made undeniable technical advances in recent years and is, in many ways, technologically ahead of advanced economies, including Japan and South Korea. It is likely only a matter of time before China’s navy develops advanced li-ion diesel-electric submarines—if it is not doing so already.

Another risk posed by China’s battery complex is its development of solid-state batteries (SSBs), which enjoy further performance advantages over li-ion batteries, including greater density, capacity, range, and no risk of fire. While SSBs have yet to be commercialized, their development could offer substantial performance improvements for both diesel-electric submarines and unmanned systems.

The massive industrial scale and growing technological sophistication of China’s battery complex could therefore not only enable Beijing to secure the commanding heights of a global industry, but also enhance its military capabilities in ways that threaten US interests.

Finding a balanced approach

Because the Chinese battery complex presents decarbonization opportunities, but also security risks for the United States and other constitutional democracies, policymakers should adopt a balanced approach to batteries, working together with allies, friends, and partners to take risk mitigation steps when necessary.

Similar to its investigation into connected vehicles, Washington should comprehensively study where batteries pose potential security risks and take countermeasures where appropriate. Given the need to decarbonize the electricity system, Washington should act against existing installations or near-term imports of Chinese batteries for grid storage only when there is a compelling reason. Despite concerns about the security of Chinese-made grid storage batteries, any efforts by China to destabilize the grid appear far more likely to emerge from offensive malware operations or China’s cryptocurrency mining assets. As an interim measure, however, the United States and its allies should increase resiliency against potential grid subversion by undertaking more spot checks of battery imports and by booting Chinese-made batteries from sensitive locations, such as military bases.

The best way to mitigate battery-related risks, however, is to develop a US and “friend-shored” supply chain. Washington, Brussels, and other allies and partners should de-risk the entirety of the battery supply chain. The coalition should focus on potential supply chain chokepoints, especially graphite, as the United States has no existing production sites for this key battery material. Fortunately, the United States has already made substantial progress on developing its battery industry, as nearly $34 billion in actual investment into battery manufacturing has occurred in 2023 alone.

But more can be done. Washington should enact policies to speed up clean energy deployment to both reduce emissions and enhance national security. This includes permitting reform, which is critical for connecting clean energy to the grid. Also, deployment of more US-made batteries could provide synergies with key defense industrial capabilities, including for unmanned platforms and manned submarines. Similarly, the United States should continue to build out its domestic charging infrastructure for electric vehicles, which are an important use for lithium-ion batteries. Finally, the United States and its treaty allies—Japan, South Korea, and the Philippines—should explore siting battery manufacturing capabilities in areas relevant for contingences involving Taiwan and the South China Sea.

Striking a responsible balance between the competing imperatives of national security, economic interests, and decarbonization is challenging. Many actors fail to grasp that multiple things can be true at once: climate change poses a massive threat to our shared global future—but so does mounting clean energy dependence on the Chinese Communist Party. US tariffs on Chinese batteries aim to take a balanced approach to managing this complicated dilemma.

Joseph Webster is a senior fellow in the Global Energy Center and the editor of the independent China-Russia Report. This article reflects his own personal opinion.

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Wald joins Bloomberg Surveillance to discuss the oil slowdown

smeadows — Fri, 10 May 2024 15:43:32 +0000

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Wald joins Bloomberg to discuss the relationship between the US and Saudi Arabia

smeadows — Fri, 10 May 2024 15:37:35 +0000

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China builds more utility-scale solar as competition with coal ramps up

Joseph Webster — Thu, 09 May 2024 18:40:41 +0000

By virtually any metric, China is undeniably the world’s solar superpower. It deployed more solar capacity in 2023 than the United States has installed in its history; it also dominates the manufacturing supply chain, especially for wafers. These achievements are remarkable. Yet China’s track record on solar, a critical decarbonization tool, is hardly above criticism, including in its domestic market.

Owing to its deployment patterns and underlying resource constraints, China’s solar usage rates, known as capacity utilization factors, are among the lowest in the world. But this could be about to change. Recent data suggest that China may be shifting from distributed solar to utility-scale solar, which would, all things being equal, raise the overall efficiency of its electricity grid while aiding decarbonization. Given that China is by far both the world’s largest greenhouse gas emitter and coal consumer, its domestic solar deployments will have global consequences. However, several hurdles hindering the country from reaching its domestic solar potential have emerged.

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Utility-scale versus distributed solar

China’s domestic solar choices matter because distinct types of solar installations have vastly different generation potentials. Distributed solar, which is typically found on rooftops, lacks the capability to track the sun’s movements and optimize sunlight reception. It therefore has a lower capacity factor than utility-scale solar, which is generally ground-mounted with single- or dual-axis tracking.

Tracking systems typically entail securing bulky frames and motors, and drilling holes to hold the system in place. This type of solar installation is generally not suited for rooftops. Buildings can struggle to structurally bear the weight of tied-down panels, while high winds pose additional risks for rooftop panels. Consequently, rooftop panels typically do not have tracking, which limits their ability to receive optimal amounts of sunlight.

Case in point, in the United States, utility-scale capacity factors in the best locations and with the latest technology, including tracking capabilities, often exceed 30 percent; utilization factors for residential solar average nearly 16 percent. China doesn’t provide a comparable data breakout for its own utility-scale versus distributed solar. It does, however, provide information about its nationwide solar capacity factors. In 2023, China’s solar capacity factors stood at 14.7 percent, versus 23.3 percent in the United States.

China’s lower capacity factors are due, in large part, to its disproportionately high deployment of distributed solar generation relative to utility-scale deployment. There are several potential reasons for China’s tilt toward disturbed solar. China’s best solar resources are in the northern and western parts of the country, relatively distant from the coastal population centers to the south and east, where much of its solar is deployed. Additionally, China has limited interprovincial electricity transfers. These transmission-related factors, along with China’s higher electricity prices for coastal provinces, incentivize rooftop solar deployment in coastal areas, as seen in the chart below.

China’s solar strategy may be shifting away from distributed solar, although the evidence is mixed. In the last quarter of 2023, China reported 58 gigawatts (GW) of utility-scale solar capacity installations, an all-time high and a massive increase from prior periods. In the first quarter of 2024, China once more installed greater amounts of distributed solar capacity than utility-scale solar.

China’s utility-scale breakout?

Some features of China’s potential turn to utility-scale deployments are worth examining. In both 2022 and 2023, China’s utility-scale installations surged in the final quarter, potentially to meet year-end construction deadlines and capacity targets set by national and provincial governments.

Additionally, some provincial-level trends are noteworthy. Hebei, for example, enjoys good solar irradiance, while its proximity to Beijing’s substantial electricity load limits transmission costs. And Yunnan, in southwest China, installation of major utility-scale capacity began at the end of 2023 and continued through the first quarter.

Xinjiang is a striking anomaly. It reports virtually no distributed solar capacity despite having good solar potential, moderate per-capita income, and 34 GW of installed utility-scale capacity (including solar that China attributes to the Xinjiang production corps). Xinjiang’s deployment patterns constitute a major outlier in a country where rooftop deployment has been encouraged through official policy.

The most plausible explanation for this anomaly emerged from a solar expert on China. In written comments to the author, the expert suggested that “If you live in a low rainfall area with dust storms then somebody must keep the panels clean or wipe them down every so often. With a multifamily dwelling a ’crisis of the commons’ issue is quick to emerge.”

While Xinjiang’s lack of distributed solar capacity may be related to several factors, it is also hard not to wonder if the Communist Party’s pervasive repression of the province’s Uyghur population weakens social trust and, consequently, disincentivizes rooftop solar deployments.

Finally, Inner Mongolia’s modest deployment of utility-scale solar has major climate consequences. The sun-soaked, windy province enjoys some of China’s best renewable energy resources, and it is also a coal bastion. In 2023, Inner Mongolia produced 1.21 billion tons of coal supply, of which 945 million tons were supplied to coal-fired power plants, as the renewables-rich province incongruently supplied over 25 percent of China’s coal production last year. Since Inner Mongolia’s thermal coal and solar production compete to provide electrons for the Chinese grid, this province will play an outsized role in shaping China’s climate trajectory.

It’s too soon to say if China is shifting solar deployment into a more efficient model: namely, utility-scale solar in the northern, more sun-soaked regions of the country. Encouraging signs include the planned construction of over 225 “renewable energy bases” across the Chinese interior, comprising total wind and solar capacity of 455 GWs, along with associated transmission lines. Some Chinese provinces are also siting solar panels on land repurposed from mining. These steps are constructive.

Yet there are also reasons to temper expectations. China’s solar utilization rates actually fell in 2023. That may be attributable to the type and regions of deployment, or bad luck from weather, but other factors are possible. With China exhibiting sudden year-end deployment surges to meet construction targets, the long-term performance and sustainment of its panels could degrade if maintenance needs rise. Finally, solar faces economic headwinds in Shanxi, Inner Mongolia, and Shaanxi—some of China’s most sun-soaked provinces. These regions also have an abundance of coal, some of which is used for steel production rather than electricity generation. Still, the fossil fuel keeps electricity prices low, disincentivizing solar.

China is showing signs of a shift toward more utility-scale solar in suitable regions, and it is making substantial progress in deploying massive volumes of solar capacity, but powerful structural hurdles to the technology’s domestic adoption are coming into focus.

Joe Webster is a senior fellow at the Atlantic Council Global Energy Center, and editor of the China-Russia Report. This article represents his own personal opinion.

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One hundred years of energy transitions

Mahmoud Abouelnaga — Wed, 08 May 2024 12:09:08 +0000

Thousands of energy leaders, technology developers, and climate advocates gathered in Rotterdam, Netherlands from April 22-25 along the 26th World Energy Congress. Looking back at the first Congress, then called the World Power Congress, in London in 1924, global energy systems looked very different. In 1924, global oil production was around 2.8 million barrels per day, compared to almost 102 million barrels per day last year. In other words, a country like South Korea or Canada consumes today the same amount of oil that the whole world needed one hundred years ago.

In 1924, there was no nuclear energy in the global energy mix and renewables were probably beyond the imagination of policy makers. By 1975, there were 200 nuclear power reactors in 19 different countries, but solar and wind power were still practically nonexistent. It was not until the early 2000s that solar and wind began to gain traction and break records year after year, contributing 18 percent of the world’s total energy consumption.

Unlike previous energy transitions, the current energy transition is not mainly driven by a more superior technology in terms of energy density and efficiency alone. The current energy transition is mainly responding to the climate impacts related to energy generation and consumption over the last century, or what economists call “externalities”. However, this transition towards more sustainable sources of energy is constrained by the increasing energy demand globally, especially in emerging and less developed economies. This makes the global energy transition measured against three main criteria, commonly referred to as the “energy trilemma”: energy security, energy affordability, and environmental sustainability.

To address the energy trilemma, four critical discussion themes emerged during the centenary World Energy Congress in Rotterdam: 1. Accelerating the deployment of existing solutions, 2. Scaling innovative technologies, 3. The interaction of energy and artificial intelligence (AI), and 4. Humanizing the energy transition.

Accelerating the deployment of existing solutions

There has been great progress on deployment of clean energy technologies over the last 20 years that made most of these technologies cost-competitive with fossil fuels in today’s market even without financial support. However, these technologies are not deployed fast enough to get us on track to meet our climate targets. For example, utility-scale wind and solar projects in the United States can take 4.5 years on average to obtain the necessary permits and navigate necessary environmental reviews for siting and construction.

There is a need for regulatory reforms that can strike the right balance between timely decisions on clean energy and infrastructure projects while preserving thorough environmental reviews. This balance would not leave project developers concerned about fluctuations in equipment costs while they are waiting on permits. The recent delays in offshore wind projects along US coastlines show how the combination of uncertainty, public acceptance, and affordability can impact the pace of the energy transition.

Scaling innovative technologies

In their 2023 World Energy Transitions Outlook, the International Renewable Energy Agency (IRENA) estimated that accelerating the deployment of renewables, energy efficiency, and electrification could achieve 69 percent of global emissions reductions needed to reach net zero by 2050. This would leave almost a third of the needed abatement to innovative, disruptive technologies (e.g., long-duration energy storage, hydrogen, e-fuels, carbon capture utilization and storage (CCUS), carbon dioxide removal) that have not been deployed at a scale large enough to meet our climate targets.

Renewables need long-duration energy storage at scale to ensure that this clean power is available anytime, day or night. Hydrogen and e-fuels will also be needed to support transportation and industrial applications that require liquid fuels, especially when their high heat demands can’t be met with renewables. Although there has been some progress on production of these cleaner fuels with major hydrogen production and infrastructure projects in the United States, Europe, Asia, and the Middle East, there are still gaps around how policies can create large demand signals to scale this market.

After all these mitigation efforts are exhausted, there will still be carbon emissions in the air that need to be subtracted from our limited carbon budget, a clear and direct role for carbon management technologies. CCUS can capture emissions from unabated industrial resources or remaining fossil-based power generation units. Some industries, even if they were completely powered by clean energy, would still emit carbon. For example, almost 60 percent of the emissions from cement production are unavoidable process emissions from the calcination process (i.e., the decomposition of calcium carbonate into calcium oxide and carbon dioxide) rather than energy-related emissions. As the Intergovernmental Panel on Climate Change indicated, climate mitigation efforts to date have been insufficient and there is a need for scaling carbon dioxide removal technologies to reduce the risks of climate overshoot and complement emissions reduction efforts, especially from hard-to-abate sectors.

The interaction of energy and artificial intelligence (AI)

Over the last few years, AI has emerged as an enabler for the energy transition. Generative AI can play an important role in modernization of the electric grid by enabling grid operators to make better, faster decisions and optimize loads. Also, AI can be one of the most effective abatement tools for fugitive methane emissions by using satellite and aerial measurements to quantify, map, and predict methane leaks. This approach can revolutionize fugitive emissions abatement by moving from preventive measures to predictive and even descriptive measures.

A successful emissions abatement strategy relies heavily on accurate measurements which can be challenging for companies with complex operations and supply chains. However, the automation capabilities of AI can drastically reduce the margin of error from manual inputs and provide accurate, real-time data to help companies identify where to focus their emissions reduction activities.

Additionally, AI can be used to improve the performance and increase the output of solar photovoltaic (PV) and concentrated solar power (CSP) systems by predicting solar output, reducing corrective maintenance costs, and providing a more accurate forecast of the capacity available to the grid from electric loads that can be turned on or off depending on the balance between electric demand and generation.

With the increase in electric vehicles (EV) adoption, AI-enabled energy demand forecasts will be critical in avoiding peak charges and reducing the burden on the grid. Although AI has many advantages to enable the energy transition, its huge energy footprint remains a challenge as countries plan for future energy needs. The International Energy Agency (IEA) estimated that electricity consumption from data centers could double by 2026 to be roughly equivalent to the electricity consumption in Japan.

Humanizing the energy transition

Since this is the first energy transition in history that is not driven solely by technology metrics, it is critical to ensure that local communities are involved in climate action plans. With disproportionate impacts of climate change around the world, especially in the global South where most countries have historically contributed far less to global emissions, energy equity and climate justice should be at the center of the energy transition. There is a dire need for bridging the climate finance gap and facilitating the flow of funds to the Global South by de-risking investments and regulatory reforms in developing economies. This would also require institutional reforms in the finance sector to move towards new financing mechanisms (e.g., concessional finance, credit guarantee, grants) rather than the unfair, high-interest loans from multilateral banks that have been the main vehicle for energy infrastructure and development projects for decades.

The world has gone through many energy transitions before, but what probably differentiates the current energy transition is that it encompasses multiple energy transitions happening at the same time. There are transformations across the globe in energy generation processes, infrastructure development, energy policy frameworks, environmental laws, and financing mechanisms. While these transformations do not need to happen at the same pace in every region, countries should ensure that the collective energy transition efforts are sufficient to meet our global climate targets. We have enough tools today to shape the next hundred years of energy.

A hundred years ago, participants at the World Energy Congress were probably not as concerned about energy-related climate impacts. However, we know better today about these impacts and how we can meet global energy needs without compromising environmental integrity. In his masterpiece, One Hundred Years of Solitude, Gabriel Garcia Marquez showed us how it took five generations to decipher the prophecy of the Buendia family and their town of Macondo. We have deciphered the energy trilemma, but global action is imperative to navigate the storm and tackle the climate crisis. If we learned anything from Marquez’s magical realism and the fate of the city of Macondo, we should work together to accelerate the deployment of energy and climate solutions that can shape a brighter future for people and planet.

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Amid competing pressures, will Ukraine quit its transit of Russian gas?

Sergiy Makogon and Daniel Stein — Tue, 07 May 2024 18:58:09 +0000

Despite Russia’s ongoing war in Ukraine, Russian gas continues to transit Ukraine on its way to European buyers. By and large, both sides continue to adhere to the 2019 EU-brokered gas transit agreement. Under that agreement, Gazprom is obliged to ship a minimum volume of gas—65 billion cubic meters (bcm) in the first year and 40 bcm in subsequent years—under ship-or-pay conditions. But there has been much speculation about what happens to transit when the 2019 agreement expires at the end of December 2024.

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Ukraine’s gas transmission system has traditionally played a major role in delivery of Russian gas to Europe. As late as 2019, transit volume was about 90 bcm, accounting for one half of Russia’s total gas exports to Europe. After Moscow’s full-scale invasion, the continuation of Russian gas transit through Ukraine provided EU member states energy security while also buying them time to arrange for alternative natural gas supplies. And by 2023, the transit volume had fallen to less than 13 bcm, with most of the gas being delivered to Austria, Italy, Hungary, and Slovakia. Other major consumers, including Germany, Poland, and the Czech Republic, have managed to end their dependence on Russian pipeline gas and Russian gas in general, although Russian LNG exports to Europe have continued to rise. But since 2022 the United States has emerged as a main LNG supplier to Europe, accounting for nearly half of total EU LNG imports in 2023 and helping to blunt Europe’s need for Russian LNG.

Of the countries most likely to be directly affected by the expiration of the 2019 agreement, Slovakia and Hungary have been the most vocal in calling for the continuation of Ukraine transit. Italy already has been able to largely replace Ukraine transit gas with LNG and pipeline gas from other sources, including Azerbaijan, and has been silent on the future transit issue. Austria presents a mixed picture. Some Austrian politicians have expressed concerns over its growing dependence on Russian gas, while others have signified their reluctance to break existing supply contracts.

For its part, the EU has expressed the view that there is no need to extend the current transit agreement, although it has not commented on the prospects for transit in the absence of an agreement. This could take the form of capacity bookings by European traders who would take delivery of Russian gas at Ukraine’s eastern border. This possibility has been discussed with little interest for many years until recently, presumably because European traders were not willing to take the attendant risk.

Meanwhile, the view from Kyiv is muddled at best. The minister of energy has completely ruled out future transit, but the prime minister has nixed an extension of the current agreement, while suggesting that transit still might continue under the right circumstances. The head of the Ukrainian gas transit company has similarly expressed willingness to continue transit at least through 2027, the proposed target date for EU countries to phase out imports of Russian fossil fuels.

The arguments in favor of Ukraine continuing to offer transit are weak, premised on the revenue Ukraine earns from transit and concerns over the availability and price of replacement gas. The first concern is overblown. Although Ukraine currently collects about $800 million per year from transit, that does not account for the costs of operating the system. Given the (EU-style) tariff methodology employed by Ukraine, the actual financial benefit is much less, and in the context of Ukraine’s economy, relatively insignificant at 0.46 percent of GDP.

Concerns about replacing Ukraine transit gas are equally overblown. Countries now dependent on Ukraine transit can easily source replacement gas, particularly LNG. Increases in US and Canadian LNG production in 2025-2026 alone would more than replace Russian gas currently being transited via Ukraine.

Meanwhile, the EU has added around 50 bcm of LNG regasification capacity since 2022. Further capacity expected to come online by the end of 2024 will result in total capacity of about 235 bcm, able to meet over 55 percent of European annual gas demand based on the gas consumption average of the last five years.

The argument that the end of transit would lead to much higher gas prices in Europe is likewise questionable. The EU gas market has currently stabilized and returned to its pre-war price range, and Ukrainian transit accounts for only 4 percent of total European demand.

So why the pressure to continue transit once the agreement lapses if Ukraine transit gas can economically be replaced with gas that doesn’t originate in Russia? In the case of Slovakia, and to a lesser extent Austria, purely financial considerations may be at work. The end of Ukraine transit could hit Slovakia hard, since most of the Ukraine transit gas also transits Slovakia through the Eustream pipeline system. However, Eustream has a ship-or-pay contract with Gazprom extending to 2028, obligating payment by Gazprom even in the absence of transit (although force majeure might excuse non-performance). The economic damage to Austria is likely smaller, since it also earns revenue from non-Russian gas transiting its Baumgarten hub.

However, Russia’s continued aggression and the war’s potential to escalate into a NATO-Russia or EU-Russia conflict underline the need for European unity and solidarity, particularly in reducing the export revenues of the aggressor. Billions of dollars in gas revenues from NATO and EU members should not be used to fuel Russia’s military capabilities. In fact, the EU is now considering a complete ban on Russian LNG imports.

Moreover, the continued reliance on Russian pipeline gas gives Russia undue political leverage and creates disunity among EU member states, weakening the West’s overall response to Russian aggression. Ending transit via Ukraine after 2024 would enhance the region’s energy security and diminish Russia’s export income with minimal disruption in gas supplies.

The Ukrainian government may face political pressure from some EU member states to maintain gas transit, with or without an agreement. To counter this pressure, the United States should: (1) discourage its EU allies from continuing to import Russian gas via Ukraine and (2) urge Ukraine to resist this pressure, while also encouraging the EU to support Ukraine in its stance.

Sergiy Makogon is the former CEO of GasTSO of Ukraine (2019-2022).

Daniel D. Stein is a former senior advisor with the Bureau of Energy Resources at the US Department of State.

EnergySource

EnergySource Feb 21, 2024

Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

By Atlantic Council experts

Experts from the Atlantic Council’s Global Energy Center offer perspectives on navigating global energy security and charting a course towards a more secure and sustainable energy future two years after Russia’s full-scale invasion of Ukraine.

Energy & Environment Energy Markets & Governance

EnergySource Dec 13, 2023

The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

By Svitlana Romanko and Oleh Savytskyi

The US and its EU allies have made several attempts to diminish Russia’s fossil fuel exports, with mixed results. the West must do more to staunch the flow of Russian oil and gas—and restore peace for Ukraine.

Energy & Environment Energy Markets & Governance

EnergySource Oct 11, 2023

A Ukrainian energy hub will help Europe’s clean transition

By Mark Temnycky

Ukraine can become an energy and minerals hub for European. Investing in Ukraine’s renewable energy industry is vital for European decarbonization.

Energy & Environment Energy Transitions

Learn more about the Global Energy Center

The post Amid competing pressures, will Ukraine quit its transit of Russian gas? appeared first on Atlantic Council.

G7 pledges to end coal—but only inclusive action will make a real climate impact

Elena Benaim — Fri, 03 May 2024 20:13:34 +0000

Energy ministers from the Group of Seven (G7) met in Turin, Italy, on the 29th and 30th of April for the first time since the United Nation climate summit in Dubai. Two days of discussion at the Climate, Energy, and Environment Ministerial meeting resulted in a series of shared commitments to address climate change and energy security. The 35-page long joint communiqué includes a historic pledge to phase out coal power plants by 2035.

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The commitment of “phasing out coal by 2035 or on a timeline consistent with the 1.5 temperature limit” marks a further step in the direction indicated last year by the UN climate summit, known as COP28, to reduce the use of fossil fuels, of which coal is the most polluting. Mentioning the IEA’s Net-Zero Roadmap report, G7 countries say that “phase-out of unabated coal is needed by 2030s in advanced economies and by 2040 in all the other regions, and that no new unabated coal power plant should be built.” This represents the first agreement on a timeline for phasing out coal after the initiative had previously failed due to opposition by some members. However, it should be noted that, despite the positive step towards a common goal, by using the term “unabated” in the communication, members of the G7 leave open a potential path for the use of coal beyond the indicated timeline.

In addition to the importance of ending coal reliance, it is now widely recognized that the success of the energy transition is linked to a technology-inclusive approach both for reaching climate neutrality and strengthening energy security. The communication of the G7 promotes members’ increasing use of diverse low-carbon energy technologies including renewable energy, energy efficiency, hydrogen, carbon management, storage, nuclear energy, and fusion.

Energy ministers fully committed to the “implementation of the global goal of tripling installation of renewable energy capacity by 2030 to at least 11 terawatts (TW)” and to “double the global average annual rate of energy efficiency improvements by 2030 to 4%,” signaling the intention to create a strong connection with COP28 pledges.

On energy storage, G7 members agreed to a global goal in the power sector of 1500 gigawatts (GW) in 2030, a more than six-fold increase from 2022. Introducing this target for storage is very important to support renewable implementation and ultimately reach the installation capacity target set in Dubai.

The communication highlights the importance for countries to reduce reliance on civil nuclear technologies from Russia and commits to strengthening the resilience of the nuclear supply chain. Countries opting for nuclear energy would work to deploy next generation nuclear reactors.

Fusion made it in the final text with a strong emphasis on the potential of this technology to provide a lasting solution to the global challenges of climate change and energy security in the future, marking an important addition to the G7 joint communication, since in the Hiroshima Communique, fusion was not mentioned.

In order to implement these targets and scale technologies, the G7 countries this year also reaffirmed their commitment to jointly mobilize $100 billion per year until 2025 and their intention to scale up public and private finance. “We stress the need to accelerate efforts to make finance flow consistent with a pathway towards low greenhouse gas emissions and climate-resilient development,” and “we acknowledge that such efforts involve the alignment of the domestic and international financial system.” Attention is now directed toward the upcoming G7 finance meeting, the G20 in Brazil, and the “finance COP” in Azerbaijan.

Finally, convergence and cooperation with countries outside the G7 will play a crucial role in the success of the transition. The joint communication acknowledges that developing countries represent “an important partner in the just energy transition” and recognizes “the great potential of the African continent in becoming a global powerhouse of the future.”

At this year’s energy ministerial meetings, Azerbaijan’s Deputy Minister on Energy Elnur Soltanov (representing the 2024 COP29 presidency), Brazil’s Minister of the Environment and Climate Change Marina Silva (representing the 2024 G20 presidency), and Kenya’s Principal Secretary on Energy Alex K. Wachira, participated along with the G7 partners. This approach shows recognition of the fundamental role that inclusivity plays in a successful transition and the willingness to create strong synergies with the upcoming multilateral forums.

It would be difficult to overstate just how critical pragmatism and convergence are to the energy transition. But this message, in addition to being successfully incorporated in the communication was further reinforced during the Future of Energy Summit, a half-day event hosted by the Atlantic Council Global Energy Center, Politecnico di Torino, and World Energy Council Italy as part of Planet Week on the sidelines of last weekend’s G7 ministerial meeting. Experts and speakers at the Summit emphasized the need to strengthen a technology-inclusive, not exclusive, approach and cooperation among countries.

The IEA’s Net Zero Emissions by 2050 Scenario (NZE) envisages that by 2030, advanced economies would end all power generation by unabated coal-fired plants, making the new G7 historic commitment unfit for purpose. However, the overall success of the transition will not be determined by pledges, but more so by the will of countries to transform pledges into action. Whether G7 countries will be able to succeed in the energy transition will depend on their capacity to create resilient clean energy supply chains, implement diversified energy mixes, promote collaboration with developing countries, scale up public and private finance, and it seems like many steps are being taken in the right direction.

Elena Benaim is a nonresident fellow with the Atlantic Council Global Energy Center.

EnergySource

EnergySource Apr 3, 2024

Central and Eastern Europe needs to rethink its approach to energy security

By Pawel Czyzak and Nolan Theisen

The upcoming Three Seas Initiative Summit is an opportune time for Central and Eastern European leaders to pivot toward clean, affordable, and local renewables to build energy security.

Central Asia Central Europe

EnergySource Dec 13, 2023

The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

By Svitlana Romanko and Oleh Savytskyi

Energy & Environment Energy Markets & Governance

EnergySource Dec 5, 2023

The Oil and Gas Decarbonization Charter is a start, but more work remains

By David L. Goldwyn, Andrea Clabough

Although the Oil and Gas Decarbonization Charter is laudable, the pace of change for this industry (as represented in this charter) is not fast enough, deep enough, or broad enough to materially address the yawning gap between the Paris commitments and the present Dubai reality.

Energy & Environment Energy Markets & Governance

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Webster quoted in Recharge News on Chinese wind power dominance

smeadows — Thu, 02 May 2024 14:46:30 +0000

The post Webster quoted in Recharge News on Chinese wind power dominance appeared first on Atlantic Council.

The double costs of conflict-driven climate change in MENA and beyond

Ariel Ezrahi — Mon, 29 Apr 2024 15:49:27 +0000

While much of the world’s attention was on the ongoing Gaza war, the Middle East and North Africa (MENA) region was also dealing with unprecedented heavy rainfall in the United Arab Emirates and surrounding countries this month, coupled with record heat waves throughout the region. These events were stark reminders of the climate change challenges faced not just by the region but the world.

With wars raging in Ukraine since 2022 and in Gaza since October 2023, not to mention other conflicts, one question that comes to mind is the cost in terms of climate change. First, direct conflict-related emissions from military equipment, damage to facilities that cause emissions—such as fuel reserves and chemical plants—or fires, and a reversion and reliance on carbon-heavy fuels, including coal. Most estimates quantify emissions from the Ukraine conflict, for example, as equivalent to Belgium’s annual emissions. The other is the opportunity cost of the lack of cooperation on climate issues across borders. (For more on this topic, see the author’s forthcoming report for the Atlantic Council to be released in summer 2024.)

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As long as Israel and Lebanon, for example, cannot agree how to cooperate on optimizing exportation from the region and eventually transition out of natural gas reserves from any shared sources towards cleaner sources of energy, both countries and the wider region will lose. (It’s worth noting that under the important Lebanese-Israeli Maritime Agreement, brokered by the United States, there are some provisions for how the parties will exploit any said gas fields and any revenue therein, but as long as the parties are not in direct contact and dependent on mediation, any additional prospect for cooperation beyond exploitation and border demarcation likely will be limited.) The same principle applies to cooperation in mitigation of extreme weather impacts through exchange of meteorological data, for example. The first cost is more straightforward to quantify, but the consequences of the second cost will only be assessed by future generations. These are the “double costs” of conflict-driven climate change impacts.

With the ongoing wars, it’s easy to dismiss the notions of climate change cooperation across borders as detached from reality. Unfortunately, the devastating impacts of climate change are not going away because of the existential threats posed by conflict. Instead, they are being worsened because of conflict.

For most countries, climate change has become a national security issue as they face mounting challenges from its impacts. In the MENA region, the risk for conflicts increases as the region becomes dryer, with scarcer sources of water, food, and energy. As the region looks to undertake an effective energy transition—which entails sharing of emission-reduction technology such as carbon capture, interconnecting electricity grids that are also capable to include increasingly renewable energy-based electricity, etc.—cooperation across borders becomes critical. Unless countries in the region and beyond find ways to work to mitigate and adapt together, it will turn into a race to the bottom—a lose-lose situation.

As long as the world has reckless and authoritarian leaders who are bent on continuing to rule by force and conflict, the rest of the world will suffer. Beyond the immediate loss of human life in conflict zones—including Ukraine, the Israel-Hamas war, Sudan, and Myanmar—other parts of the world will suffer the impacts of the “double cost” of climate change due to these events.

The trouble is that most politicians think short-term due to election cycles. So, medium- to long-term climate impacts are often not prioritized. Democratic countries governed by policies endeavoring to tackle climate change impacts can play an important role, as has been demonstrated by governments in Europe and North America. However, the continued success of such policies only works as long as a new government isn’t sworn in with a change of policy towards climate change, which undermines the milestones achieved. This was evident when then US President Donald Trump withdrew from the Paris Climate Accord in 2020. If he returns to the White House, Trump may repeal the Inflation Reduction Act, a move that would take away incentives for companies to invest in cleaner energies and, rather worryingly, send a strong signal to other global players that the United States is not a reliable partner for dealing with climate change.

A successful energy transition will address developing and developed economies’ current real energy needs, including hydrocarbons, for a defined period. However, it will critically establish medium- to long-term plans to scale up green energies. Moreover, democratic systems of government with policies and agendas in place to adapt and mitigate the effects of climate change would be wise to consider establishing mechanisms that help ensure the longevity of these policies beyond a change of government. This is a tall order to ask democratic governments to do, especially as the tools they have to limit the ability to reverse such policies are restricted. Nonetheless, the more such policies are enshrined, for example, in international relations, and with clear economic incentives, the more difficult it is to undo them.

While it is tempting to focus on the here and now, especially with respect to devastating live conflicts, it is critical to equally take steps to enable climate change mitigation and adaptation cooperation across borders—including across conflicting ones. Although nearly impossible to contemplate in the midst of conflict, this is precisely what needs to be done. Warmongering leaders in the region and beyond inflict not only direct losses today, but the impacts will be felt for generations to come. In the national security realm of climate change, this means that damage done to the planet is not just the direct emissions from conflict but also the opportunity cost of the lack of cooperation in dealing with the largest threat facing humanity. The “double costs” of conflict-driven climate change need to be understood and acted upon today in the MENA region and beyond.

Ariel Ezrahi is a nonresident senior fellow with the Atlantic Council’s Middle East Programs. Ezrahi currently serves as the director of climate strategy at a fintech fund. Ezrahi is also on the board of the MENA2050 Climate Action Committee and the chairman of its Energy Transition Subcommittee. He was the architect of the Gas for Gaza project, the inaugural director of energy at the Office of the Quartet, and the Energy Adviser to the Quartet Representative, former UK Prime Minister Tony Blair.

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A decentralized power grid can help Ukraine survive Russian bombardment

Yuri Kubrushko — Thu, 25 Apr 2024 01:10:41 +0000

In recent months, Russia has launched a major new bombing campaign targeting Ukraine’s civilian energy infrastructure. Building on key lessons learned from an earlier air offensive conducted during the first winter of the war, the current wave of Russian airstrikes has concentrated on Ukraine’s largest power plants with devastating results. Since the beginning of 2024, a large part of Ukraine’s thermal and hydro power generation capacity has been damaged or destroyed.

“Rather than continuing to focus their attacks on Ukraine’s transmission systems, from late March Russia began launching massive attacks on our energy generation infrastructure,” Maxim Timchenko, CEO of Ukrainian energy producer DTEK, told CNN. “Unfortunately, the enemy has evolved his tactics and is using high-precision weapons. The result is a huge increase in its destructive effectiveness compared to 2023.”

This is placing unprecedented pressure on Ukraine’s embattled power grid. Problems are arising not only due to a severe shortage of generation capacity, but also because the destroyed facilities played a vital role in ensuring the flexibility of the system. Fears are now growing that Ukraine will face rolling blackouts in the coming months, with potentially grave consequences for the wartime Ukrainian economy and the humanitarian situation in the country.

Ukrainian government officials and energy sector representatives anticipate that it could take years to repair the extensive damage done to power plants targeted in Russia’s recent attacks. Nor would this necessarily solve the problem. As numerous commentators have already pointed out, repaired facilities would remain vulnerable to future Russian airstrikes. Indeed, some of the plants struck since the beginning of 2024 had only recently been fixed following earlier bombardment.

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There are alternatives to simply repairing Ukraine’s old power grid and hoping for the best. Looking ahead, many industry experts and officials favor a more diverse and decentralized model for the Ukrainian energy sector. Volodymyr Kudrytskyi, CEO of Ukrainian electricity transmission system operator Ukrenergo, recently argued that instead of relying on 15 to 20 large electricity generation facilities dating back to the 1960s and 1970s, Ukraine should be aiming to construct a nationwide network featuring hundreds of far smaller power plants.

This national energy upgrade should incorporate the latest technologies and take maximum advantage of Ukraine’s considerable renewable electricity generation capabilities. From a military perspective, it would be significantly more challenging for Russia to inflict critical damage on such a decentralized Ukrainian power grid. With a large number of potential targets spread out across the country, the cost of doing so would also likely be prohibitive.

The Ukrainian private sector can play a critical role in the transformation of the country’s energy industry. For the past two years, Ukrainian companies have demonstrated remarkable resilience in the face of Europe’s largest invasion since World War II. They have successfully adapted to incredibly challenging conditions and have overcome a wide range of obstacles, including in the energy sector. But in order to lead the way in building a new generation of power plants, the country’s energy entrepreneurs require access to the necessary financial tools.

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While Ukraine’s energy industry has received considerable financial support since 2022 from international donors and development institutions, most funding has gone to the public sector. This is understandable, given the need to keep state-run critical infrastructure functioning. However, in order to advance to the next stage, the Ukrainian authorities and the country’s international partners must look to make new projects economically viable for Ukraine’s private sector.

Without access to financing along with additional efforts to minimize the economic risks involved in new projects, the large-scale construction of decentralized energy facilities is unlikely to happen. Ukraine’s state-owned energy companies are already occupied with the restoration of their existing assets, and are not realistically in a position to embark on dozens of new projects in parallel. Providing access to financing could help spur competition within the Ukrainian private sector and pave the way for significant investment.

Much of the financial support for Ukrainian energy initiatives currently comes from international financial institutions. At present, many of Ukraine’s largest private sector players do not meet their criteria, while others are too small to appear on their radar. With little prospect of overcoming financial obstacles, some Ukrainian energy sector companies are already turning their attention to more economically viable projects outside Ukraine. Unless the situation changes, others may follow.

Financing the decentralization of Ukraine’s energy sector should be recognized as a strategic priority. Russia is clearly aiming to destroy the Ukrainian power grid and hopes this will break the country’s ability to resist. Withstanding the Russian attack on Ukraine’s energy infrastructure is therefore vital for the wider war effort. The Ukrainian private sector is a logical partner in this undertaking, but needs access to the financial tools that only the country’s international partners can provide. To paraphrase Winston Churchill, “Give Ukrainian entrepreneurs the financial tools, and they will finish the job.”

Yuri Kubrushko is co-founder of the Green Recovery Fund.

smeadows — Tue, 23 Apr 2024 17:31:01 +0000

The post Webster in The Interpreter: The Kyrgyzstan route facilitating Russia’s invasion of Ukraine appeared first on Atlantic Council.

Navigating dominant narratives and data accuracy: Implications for energy security

Sara Vakhshouri — Tue, 23 Apr 2024 15:48:09 +0000

Top lines

Energy market forecasts create data-driven narratives that economists and lawmakers use to inform consequential policy and investment decisions.
Projections by influential international energy organizations, including the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC), vary widely. This discrepancy not only creates uncertainty within the market but also has the potential to impact market decisions and, ultimately, undermine energy security.
Moving forward, organizations must improve data accuracy and transparency, so that stakeholders can navigate energy market uncertainties with confidence, ensuring a resilient, sustainable, and inclusive energy future.

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THE DIAGNOSIS

Energy market shocks and uncertainties, from the COVID-19 pandemic to geopolitical tensions, highlight the importance of understanding the nuanced interplay between data-driven narratives and market expectations within the energy sector. These narratives, which are shaped by reputable energy organizations, wield significant influence over market dynamics, impacting commodity pricing and investment trends.

Delving into these narratives and discerning underlying sentiments are crucial for unlocking insights vital for ensuring energy security. By scrutinizing data-driven narratives, policymakers, analysts, and investors can adeptly navigate the intricacies of the energy market, anticipating trends, and making informed policy and investment decisions.

However, discrepancies between how major energy organizations like OPEC and the IEA approach forecasting complicate navigating energy market uncertainties both in the short and medium terms.

The IEA and OPEC offer distinct scenarios to forecast future energy trends and inform policy decisions. Comparing the organizations’ 2023 outlook reports, the IEA’s World Energy Outlook scenarios focus on specific policy targets like net-zero emissions and aligning with the goals of the Paris Agreement. In contrast, OPEC’s World Oil Outlook scenarios incorporate policies more broadly, reflecting a range of possible policy outcomes and market conditions. This distinction is crucial, as it results in significantly varied projections.

IEA’s reliance on a policy-based methodology, evident in its outlook report and the influential Net Zero Roadmap, is susceptible to inaccuracies due to policy shifts driven by changing geopolitical, economic, environmental, and, ultimately, national security priorities. While this methodology provides insights into potential future scenarios based on existing policies, it should not be the sole determinant for policy and investment decisions, given the fluid nature of policies. These inaccuracies between policies and market realities in the future can lead to decisions that are not aligned with market realities, posing a threat to energy security.

BOTTOM LINES

Moving forward, improving data accuracy, and enhancing data-driven modeling are vital for crafting effective policies and shaping investment decisions in the face of energy market uncertainties. Access to accurate data and transparent modeling assumptions is crucial for informed decision-making, particularly during the energy transition. By embracing data-driven narratives rooted in classical forecasting models alongside with polices, stakeholders can navigate energy market uncertainties with confidence, ensuring a resilient, sustainable, and inclusive energy future.

ABOUT THE AUTHOR

Sara Vakhshouri is founder and president of SVB Energy International & SVB Green Access, Senior Energy Fellow at Oxford Institute for Energy Studies, and chair of the Center for Energy Security and Energy Diplomacy at the Institute of World Politics, a graduate school focusing on national security and statecraft.

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Russian bombardment of Ukraine’s power grid may force millions to flee

Olga Aivazovska, Andriy Savchuk — Tue, 23 Apr 2024 15:28:47 +0000

In October 2022, the Kremlin launched what was then the most comprehensive bombing campaign of the war. For the next five months, waves of Russian missiles and drones struck Ukraine’s civilian energy infrastructure on an almost daily basis. The attacks aimed to break Ukraine’s resistance by making life as unbearable as possible for tens of millions of Ukrainian civilians.

At the time, Kremlin spokesman Dmitry Peskov openly stated that Ukraine could “end the suffering” of the civilian population by fulfilling Russia’s demands. Instead, the Ukrainian authorities worked with the country’s partners to improve air defenses and import large quantities of electricity generators. Ukrainians endured a dark and often terrifying winter, but the country survived.

The International Criminal Court in The Hague has recently issued arrest warrants for high-ranking Russian military officials on suspicion on committing war crimes and crimes against humanity in connection with the winter 2022-23 bombardment of Ukraine’s civilian infrastructure. However, this has not prevented the Kremlin from embarking on a new air offensive against Ukraine’s power grid and other essential infrastructure targets across the country. Once again, Russia appears intent on depopulating entire regions of Ukraine.

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In March 2024, large-scale Russian bombing of Ukraine’s energy infrastructure resumed with a series of massive barrages involving drones and a variety of missiles. Russian military planners appear to have learned from the mistakes of Moscow’s earlier bombing campaign; instead of focusing on the Ukrainian electricity grid’s transmission systems, this new wave of airstrikes has concentrated on energy generation infrastructure.

The results have been devastating. Within a matter of weeks, Ukraine has lost many of its most important thermal power plants and key hydroelectric plants. Major cities including Kharkiv and Odesa have experienced periodic blackouts and prolonged disruption to energy supplies. Experts believe it will take years to repair damaged facilities and replace equipment.

Russia has been able to achieve such success by exploiting the growing gaps in Ukraine’s air defenses due to extended political deadlock in the US over critical military aid. With Ukrainian air defense crews forced to ration dwindling supplies of interceptor missiles, Russia has been able to hit and destroy high-value targets such as the biggest power plant in the Kyiv region. With further US aid now expected, Ukrainians may soon see a marked improvement in the country’s air defenses. However, the clock is ticking and Russian attacks continue.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

By making large parts of Ukraine unlivable for the civilian population, Russia hopes to create a new wave of Ukrainian refugees. Analysis of the winter 2022-23 bombing campaign indicates that Russian attacks on the Ukrainian power grid did lead to an increase in the number of people exiting Ukraine for the safety of neighboring EU countries.

Unless Ukraine urgently receives additional air defense systems and ammunition from the international community, there is a very real danger that millions of Ukrainians will be forced to flee their homes in the coming months. If that happens, many would be likely to join the millions of Ukrainians who have already left the country for the European Union since the onset of Russia’s full-scale invasion.

Russia’s depopulation tactics have serious consequences for Ukrainian morale and for the country’s wartime economy. Research has found that economically active Ukrainians are the most likely to leave as a result of persistent bombardment. Many Ukrainian companies are already finding it increasingly difficult to fill vacancies, especially in labor-intensive sectors of the economy.

Meanwhile, fresh influxes of Ukrainian refugees would create challenges for the country’s European partners, who have already accommodated extremely large numbers of Ukrainians since 2022. A major new wave of refugees could create social tensions and undermine political support for Ukraine within the EU. This potential for destabilization is also very much part of the Russian strategy.

Depopulating entire regions of Ukraine will pave the way for new Russian advances, while also weakening Ukraine’s wartime economy and making it more difficult to preserve the country’s independence. The resulting surge in Ukrainian refugees could also have a range of negative consequences for Kyiv’s partners in the EU.

It is clear that both Ukrainian and Western leaders have a vital interest in protecting the country against Russia’s new air offensive. In the short term, this means delivering sufficient air defenses to guard cities and critical civilian infrastructure against Russian bombardment, while also providing the necessary equipment to repair Ukraine’s battered energy infrastructure. News of a recent breakthrough regarding US aid is encouraging, but all of Ukraine’s allies need to contribute to the strengthening of the country’s air defenses.

Ultimately, the international community must hold Russia’s military and political leaders accountable for war crimes against the civilian population. However, the wheels of international justice turn notoriously slowly, while Ukraine’s needs are urgent.

Olga Aivazovska is co-founder of the International Center for Ukrainian Victory (ICUV) and head of the board at Civil Network OPORA. Andriy Savchuk is a data analyst at Civil Network OPORA.

Hospitals, businesses, and homeowners are now scrambling to secure generators and other alternative power sources in anticipation of further blackouts, with children forced to study online or in makeshift underground classrooms. For now, most Kharkiv residents appear intent on staying put. However, if the situation does not improve in the coming months, there may be a mass exodus ahead of the winter season. Indeed, many fear that without enhanced air defenses, conditions inside the city could become intolerable much sooner.

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The destruction of Kharkiv would certainly be a major war crime, but it would be far from unprecedented. On the contrary, the methodical depopulation of Ukraine’s second city would be very much in keeping with the destructive tactics employed by Russia ever since the full-scale invasion of Ukraine first began more than two years ago.

From Mariupol to Bakhmut, the Russian military has reduced a long list of Ukrainian towns and cities to rubble as it has slowly steamrollered forward along the largely static front lines of the war. Although it is not possible to accurately determine casualty figures in areas currently under Russian occupation, tens of thousands of Ukrainian civilians are believed to have been killed in Mariupol alone.

While the Kharkiv region has been the worst hit, the recent escalation in Russian bombardments has impacted the whole country, with attacks on the power grid in particular creating unprecedented challenges for the entire Ukrainian energy sector. This appears to be the result of extensive planning in Moscow, with Russian military officials learning important lessons from the failure of their winter 2022-23 energy infrastructure bombing offensive.

“Rather than continuing to focus their attacks on Ukraine’s transmission systems, Russia has began launching massive attacks on our energy generation infrastructure,” the CEO of Ukrainian energy provider DTEK, Maxim Timchenko, told CNN. “Unfortunately, the enemy has evolved his tactics and is using high-precision weapons. The result is a huge increase in its destructive effectiveness compared to 2023.”

The timing of the current bombing campaign also suggests Moscow is looking to take advantage of growing gaps in Ukraine’s air defenses. With a vital aid package held up in the US Congress for more than half a year, the Ukrainian military is currently suffering from a wide range of shortages, leaving front line commanders and air defense crews with no choice but to ration dwindling supplies of ammunition.

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David Goldwyn: Energy markets will hinge on Israel’s response

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine’s main port city and international maritime gateway, Odesa, has been heavily targeted in recent months. Attacks on residential areas in the Sumy and Chernihiv regions of northern Ukraine have also accelerated noticeably. In early April, a massive barrage of missiles succeeded in penetrating Ukraine’s depleted air defenses close to the country’s capital, destroying the largest power plant in the Kyiv region. “Why? Because we had zero missiles. We ran out of all missiles,” a clearly exasperated Ukrainian President Volodymyr Zelenskyy told PBS NewsHour.

Ukrainian officials are now urgently appealing for extra air defenses to help counter Russia’s bombing campaign. So far, the response has been muted, with only Germany confirming plans to hand over a Patriot system. Others, such as the Netherlands, have offered to purchase Patriot systems on behalf of Ukraine. While these steps are welcome, much more needs to be done to protect Ukraine’s civilian population and the country’s infrastructure.

Many analysts believe improved air defenses are not enough and argue that in order to effectively counter Putin’s terror-bombing tactics, Ukraine must be given the necessary long-range weapons to target Russian launch sites. However, this would require Ukraine’s partners to overcome their well-documented fear of escalation and reverse a longstanding ban on the use of Western weapons for attacks inside Russia. At present, there is little sign of that happening.

The International Criminal Court in The Hague has already issued arrest warrants for two high-ranking Russian military officers over the 2022-23 bombing of Ukraine’s civilian infrastructure, but this is of little comfort to the beleaguered Ukrainian population, who know it will be years before they see even symbolic justice served. Meanwhile, the current bombing campaign continues to gain momentum. This new air offensive is far more ambitious than Russia’s earlier efforts, with the apparent end goal of rendering entire Ukrainian regions uninhabitable.

Unless Ukraine’s air defenses are dramatically upgraded in the near future, the country will face a humanitarian catastrophe that could potentially define the future course of the war. Putin has been unable to defeat Ukraine decisively on the battlefield, but his bombing campaign may yet succeed in breaking Ukrainian resistance by forcing millions of civilians to flee their blacked out homes and ruined cities.

Peter Dickinson is editor of the Atlantic Council’s UkraineAlert service.

Atlantic Council experts — Tue, 16 Apr 2024 19:34:36 +0000

Energy markets have shown a muted response to Iran’s unprecedented attack on Israel over the weekend, despite the threat this escalation poses to global oil supplies. But, as Israel weighs its response, the risks to fuel prices and global energy security are extremely high. Our experts comment on what to watch for as tensions rise.

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Ellen Wald: Will Iran close the Strait of Hormuz?

Brenda Shaffer: Iran-Israel direct confrontation will last months, not days

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Energy markets will hinge on Israel’s response

Energy markets have been pretty sanguine about rising tensions in the Middle East for some weeks. This may not last. The baseline assumptions have been that the Strait of Hormuz will remain open because it is in Iran’s interest to keep them open. Trade in liquefied natural gas (LNG) has been rerouted to avoid Houthi attack in some cases, but Qatar has had a fast pass to deliver to market. Even this week, markets were relieved at the ability of Israel and its allies to repel the Iranian drone and missile attack, and continue to assume that Israel’s response will not attack Iranian oil production.

But the key question is what comes next. Pressure in Israel to respond to the Iranian attack is intense. There is a high risk of confrontation with Hezbollah in the north to mitigate the risk of a short-range missile attack on Israel. And the Israelis are not done with their Gaza operation. Iran has taken what it thinks is a well previewed and measured response to Israel’s strike on its consulate in Syria to end the cycle of response, but neither Israel nor the United States can tolerate Iranian attacks on Israel as the new normal.

Key issues to watch in the next two weeks are: 1) what measures the United States and allies will take to try to forestall an Israeli escalation that could lead to a wider war; 2) whether new sanctions on Iran will target insurance clubs, Chinese banks, or both; 3) whether the United States will dramatically increase targeting of Houthi strongholds as a way of reducing the threat to shipping and retaliating against Iran; and 4) whether Israel will exercise restraint, or whether it will trigger a new round of kinetic activity.

At minimum, shipping costs are likely to increase based on the increased risk of military action in the Persian Gulf, pressure on US and European insurance clubs to avoid any transactions—including those with China—that involve Iranian crude and additional rerouting of oil and gas shipments in response to Houthi threats, or Allied responses. Cooler heads in the United States, Europe, Jordan, Saudi Arabia, and hopefully China will try to head off confrontation that will drive oil and gas prices into triple digits. But they may not prevail….

David L. Goldwyn served as special envoy for international energy under President Obama and assistant secretary of energy for international relations under President Clinton. He is chair of the Atlantic Council’s Energy Advisory Group and a nonresident senior fellow with the Council’s Global Energy Center.

Will Iran close the Strait of Hormuz?

As the conflict between Iran and Israel intensifies, the big question is “will Iran close the Strait of Hormuz”? This narrow waterway must be traversed by all ships exiting and entering the Persian Gulf. According to the EIA, about 21 percent of the world’s liquid petroleum (crude oil, condensate and petroleum products) travels through the Strait of Hormuz, making it the most important oil transit chokepoint.

If Iran shut down transit through the strait, oil supplies would be immediately and significantly impacted. Asia would feel the effects most acutely, as 80 percent of the crude oil and condensate that leaves the Persian Gulf through the strait is shipped to Asian customers.

Iran has threatened this action in the past, but never followed through. Iran isn’t likely to close the strait to Saudi, Kuwaiti, Iraqi, and Emirati oil, because if it did, the United States would immediately deploy naval forces to prohibit ships carrying Iranian oil from exiting the Persian Gulf. Iran is completely dependent on revenue from its illicit oil trade, and if it could not export oil, the government would become immediately insolvent.

Even though Iran’s oil is technically under heavy US sanctions, those sanctions are applied on the buyers of Iranian oil, and those buyers have ways of evading sanctions by masking the origin of the oil they purchase. In addition, the Biden administration has not enforced sanctions violations against Iran’s largest customer, China, in ways significant enough to deter Chinese refiners from buying Iranian oil.

Sanctions enforcement and the security of the Strait of Hormuz go hand in hand. If the United States starts enforcing its oil sanctions more strictly and Iran cannot not find buyers for its oil, then Iran could be motivated to close the strait to shipping, because it has nothing to lose. But if sanctions are not as strictly enforced and Iran continues to generate significant revenue from its oil sales, then it will be motivated to keep the Strait of Hormuz open to all shipping.

At the same time, Iran uses revenue from its oil industry to fund terrorism and unrest throughout the Middle East and beyond. Iran isn’t going to close the Strait of Hormuz unless it has nothing to lose. Insurance costs on transporting oil through the Persian Gulf will likely rise, as the potential for an oil tanker to get caught in the crossfire is now more likely. The risk of short-term spikes for oil prices will remain, but the risk of long-term, elevated oil prices owing to a supply shock from the Middle East is still low.

Ellen R. Wald is a nonresident senior fellow with the Atlantic Council Global Energy Center and the co-founder of Washington Ivy Advisors.

Iran-Israel direct confrontation will last months, not days

The Iran-Israel direct confrontation is not over. Currently, the oil market does not correctly reflect the risks to disruption of oil supplies, especially to Iran’s oil production and exports.

Israel will respond to Iran’s April 13 massive aerial barrage. The timing of Israel’s response will depend on when the proper target emerges. States do not pick a date to attack and then look for targets, rather the opposite. When the proper target is identified, the attack will take place.

Iran’s oil production and export is an attractive potential target, because a severe disruption of Iran’s oil infrastructure will be a strategic loss to Iran—and can be accomplished with few human casualties. Yet, clearly the United States would oppose an attack that would reduce Iranian oil exports. The Biden administration wants as many barrels on the market as possible in an election year to keep the global oil prices low, and has not been enforcing US sanctions on Iranian oil exports. Iranian oil production and exports have grown significantly under the Biden administration. In new Iran sanctions that the administration announced on April 18, reference to oil was conspicuously missing.

An illustration of the administration’s tenacity in keeping foreign barrels in the market, Washington asked Ukraine to refrain from attacking Russian oil refineries, despite the effectiveness of these attacks to slow Russia down. If Israel decides to attack Iran’s oil infrastructure, it will likely wait to do it until after the US November elections. Thus, in assessing the impact of the Iran-Israel confrontation on the global oil market, it is important to assess impact over months and not over days.

Iran’s decision to attack Israel from its own territory, and not via proxies as it has done for over twenty years, is exceptional. The regime in Iran is quite calculating and strategic and this decision to attack Israel does not fit its normal mode of behavior. Iran essentially has no modern navy, no serious air defense, and no air force (most of the planes in is inventory were purchased from the United States and France in the 1970s). In this state, it is surprising that Tehran launched the massive aerial attack on Israel, opening itself up to a counterattack. There are two potential explanations to Iran’s decision. One, Iran may be very close to developing a nuclear weapon (or has succeeded), thus has increased confidence, despite its conventional military inferiority. Or, Tehran may have underestimated US support for Israel and the mobilization of most Arab states to challenge the Iranian attack.

Brenda Shaffer is a nonresident senior fellow with the Atlantic Council Global Energy Center.

EnergySource

EnergySource Feb 21, 2024

Escalating Middle East conflict means North America must bolster global energy security

By Julia Nesheiwat

The Houthi attacks on ships in the Red Sea have raised shipping costs and caused delays for certain traded goods. While global energy supply has remained uninterrupted, the threat of a broader conflict in the region raises the chances that there will be disruptive attacks on energy and transport infrastructure, putting energy security at risk.

China Energy & Environment

New Atlanticist Jan 11, 2024

Experts react: What to know about US and UK strikes on the Houthis in Yemen

By Atlantic Council experts

Atlantic Council experts share their insights about the strikes and about what to expect next—including how Iran might respond.

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Read the full article here.

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Donovan and Nikoladze cited by Politico on oil trade between China, Russia, and Iran

stanleywu — Tue, 16 Apr 2024 18:16:51 +0000

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Ukrainian nuclear energy can fuel country’s recovery and power Europe

Suriya Evans-Pritchard Jayanti — Tue, 16 Apr 2024 13:42:13 +0000

Even while recent Russian attacks on energy infrastructure have once again thrust Ukraine’s besieged energy sector into the headlines, the country’s energy potential remains undiminished. Ukraine’s competitive advantage in clean power including wind, solar, and especially nuclear, is extraordinary. This capacity can play a leading role in funding the country’s reconstruction and could also help carve out a future place for Ukraine in Europe.

The cost of rebuilding Ukraine is currently estimated by the World Bank at $486 billion. Some of this, hopefully, will be paid for by Western governments and with seized Russian assets, but private investment and Ukrainian ingenuity will have to foot a large portion of the bill. However, with no end in sight to hostilities, global investors are more likely to put their money into longer term projects, of which large energy infrastructure is a prime example. Nuclear power is among the most promising options.

Ukraine has been a nuclear energy country since 1977. With the very high-profile exception of the 1986 Chornobyl nuclear disaster, which was much more a failure of Soviet bureaucracy and politics than of Ukrainian nuclear energy management, the country actually boasts a strong record of nuclear power success. Before Russia’s full-scale invasion forced the shutdown of the Zaporizhzhia Nuclear Power Plant in 2022, Ukraine had 15 reactors running, constituting approximately 54% of its baseload power generation.

Ukraine has a well developed nuclear energy industry including a national regulator and a large nuclear workforce. It also has a bilateral civilian nuclear power agreement with the US, known as a 123 Agreement, which means it is authorized to receive most US civilian nuclear technology. With US and European nuclear ambitions bogged down by over-regulation, spiraling construction and commodity costs, a limited nuclear labor force, underdeveloped supply chains, and a near irrational fear of nuclear accidents, Ukraine’s nuclear sector has a number of clear advantages.

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Ukraine’s nuclear agility is unparalleled. Now that it is a fully integrated member of ENTSO-E, the potential for the country to export nuclear-generated clean power to Europe is huge. While building new nuclear power plants in Ukraine is hardly a quick option, once full commercial power exports are authorized, Ukraine could make many billions per year on electricity sales to the rest of Europe.

With its preexisting nuclear industry, Ukraine could also potentially expand its nuclear capacity much faster than any newcomer to nuclear power generation. In the West, nuclear power plants can take 8-15 years to build, depending on regulatory approval times. They can cost approximately $2-3 billion for a single small modular reactor and as much as $15 billion for a large plant. In the past, Ukraine has been able to build nuclear power plants with significantly lower costs and in shorter time frames.

By purchasing Ukrainian power, Europe could save billions and reinforce its energy security. The EU’s energy transition plan is mostly focused on renewables, but a baseload is required to make renewable power sources usable as peak load. With war in the Middle East shutting down the Red Sea and Suez Canal shipping routes, new EU sanctions under consideration targeting Russian liquified natural gas (LNG), Russia bombing Ukrainian gas storage facilities holding European gas supplies, and the end of the Gazprom-Naftogaz transit contract in December 2024, nuclear power is the only scalable baseload available that is secure and zero emission.

Ukraine can also offer much cheaper power than other European countries. Although current Ukrainian prices are regulated according to wartime restrictions, and while Russian devastation of Ukrainian power generation capacity in March and April 2024 has affected markets, Ukraine will remain extremely competitive with the rest of Europe even once controls are lifted.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

The path forward will not be straightforward. In addition to the obvious challenges presented by Russia’s ongoing invasion, the biggest obstacles Ukraine faces in expanding its nuclear power capacity are investor fears and the need for reform at the country’s state-owned nuclear power company, Energoatom.

The possibility of private nuclear power plants is a huge opportunity for Ukraine’s economy and thus reconstruction, because the private sector almost invariably moves faster and more efficiently than the public sector. Many countries have privately owned and operated nuclear power plants, including the US and UK. This model makes it possible to raise funds quickly. It also brings security and rule of law benefits, along with operational benefits and the anti-corruption protections of Western business standards. Moreover, private companies can get started now, potentially years before state-owned entities.

As to public nuclear development, meaning with and through Energoatom, success will depend on achieving de-monopolization and reform of the state-owned company. Despite its nuclear power prowess and ownership and operation of all four of Ukraine’s nuclear plants, Energoatom is hampered in its nuclear expansion plans by a legacy Soviet corporate culture based on monopoly status. Its monopoly position in Ukraine has eliminated any internal incentive to adopt Western corporate standards, including anti-corruption norms.

In recognition of this, Ukraine’s parliament enacted a law in February 2023 requiring the corporatization of Energoatom in order to “open up additional opportunities for attracting significant investments in the industry and development of domestic nuclear energy, which is the key generation in the country,” according to Ukraine’s Minister of Energy German Galushchenko. This corporatization process is currently underway.

Intended to bring the nuclear behemoth into line with international corporate governance and structure standards, the reform of Energoatom requires the selection of an independent international supervisory board and the implementation of numerous internal policies and standards. It is seen as so important that its completion is a requirement for Ukraine to receive up to $100 million in financial support from the US under the recently signed Ukraine-US Memorandum of Understanding regarding Collaboration on Ukrainian Energy System Resilience.

Once the reform of Energoatom advances and possibilities for private nuclear power open up, Ukraine could lead the rest of Europe in constructing new nuclear power plants. Energy is one of Ukraine’s great strengths, as are an educated labor force and technological skills. Taken together, these assets can help fuel Ukraine’s reconstruction and power Europe’s energy transition through new nuclear development.

Suriya Jayanti is a nonresident senior fellow at the Atlantic Council’s Eurasia Center.

smeadows — Mon, 15 Apr 2024 16:54:40 +0000

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Webster quoted in El Economista on falling Chinese EV prices

nsinha — Wed, 10 Apr 2024 18:57:00 +0000

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Webster quoted in Il Riformista on Chinese subsidies to its wind sector

nsinha — Wed, 10 Apr 2024 17:55:35 +0000

The post Webster quoted in Il Riformista on Chinese subsidies to its wind sector appeared first on Atlantic Council.

Webster quoted in China Watcher on EU’s crackdown of China’s state-backed wind turbines

nsinha — Tue, 09 Apr 2024 17:49:27 +0000

The post Webster quoted in China Watcher on EU’s crackdown of China’s state-backed wind turbines appeared first on Atlantic Council.

Webster quoted in Politico Europe on Brussels’ new probe into Chinese wind turbines

nsinha — Tue, 09 Apr 2024 17:44:00 +0000

The post Webster quoted in Politico Europe on Brussels’ new probe into Chinese wind turbines appeared first on Atlantic Council.

Panikoff quoted in The Sydney Morning Herald on Saudi Arabia’s intertwined economic future and foreign policy

Atlantic Council — Thu, 04 Apr 2024 17:36:45 +0000

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Ukraine’s allies divided over drone campaign targeting Russian refineries

Giorgi Revishvili — Wed, 03 Apr 2024 23:42:23 +0000

Ukraine carried out one of the longest range drone strikes of the war so far on April 2, hitting an oil refinery in Russia’s Tatarstan region approximately 1300 kilometers from the Ukrainian border. The attack was the latest in an expanding campaign of drone strikes that have inflicted significant damage on Russia’s oil and gas industry, while also revealing divisions among Ukraine’s international partners.

The first signs of international unease over Ukraine’s air offensive emerged in late March, with the Financial Times reporting US officials had urged Ukraine to halt drone strikes on Russian refineries amid concerns about global oil prices and possible retaliation. Days later, Ukrainian President Volodymyr Zelenskyy confirmed the US reaction to Ukraine’s airstrikes was “not positive,” but stressed Ukraine would not accept limitations on the use of domestically-produced weapons. “We used our drones. Nobody can say to us you can’t,” he commented.

Ukraine’s other key allies have yet to voice similar concerns over drone strikes inside Russia. This apparent split was on display during US Secretary of State Antony Blinken’s April 2 visit to Paris. While Blinken reiterated that the US has “neither supported nor enabled strikes by Ukraine outside its territory,” French Foreign Minister Stéphane Séjourné struck a different note. “The Ukrainian people are acting in self-defense and we consider that Russia is the aggressor,” he commented. “In such circumstances, there is hardly anything else to say. I think you understood me.”

The French position was welcomed by Ukrainians, who view the war with Russia as existential for their country and believe they should have the freedom to fight without artificial constraints. This means leveraging Russian vulnerabilities and capitalizing on emerging opportunities, both within occupied Ukrainian territory and inside Russia itself.

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Ukraine has bombed more than a dozen Russian oil refineries since the air offensive began in early January 2024, including some of the biggest plants in the country. Many of the attacks have taken place far from the Ukrainian border, highlighting the increasingly long-range capabilities of Ukraine’s drone fleet.

Since Ukraine is restricted from employing Western-provided weapons against targets inside Russia, the production of long-range drones has become a top priority for Kyiv. This has led to a surge in investment and a spike in output. Drones are significantly cheaper to produce in large quantities than long-range missiles and require less infrastructure.

Ukraine’s partners have also backed Kyiv’s focus on drone warfare. In January 2024, the United Kingdom pledged to spend at least $250 million to rapidly procure, produce, and deliver 1000 one-way attack drones to Ukraine. Although precise details regarding Ukraine’s drone stockpile remain undisclosed, the rhetoric of Ukrainian senior officials and the ongoing strikes suggest the current bombing campaign inside Russia is likely to continue gaining momentum.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine has defended its attacks on Russian refineries by noting that oil revenues are at the heart of the Russian war economy, making oil facilities legitimate targets. Ukrainian military planners expect their expanding drone offensive to have military, economic, and political repercussions for the Kremlin.

In the military sphere, the past three months of attacks have confirmed that Russia’s oil facilities are inadequately defended. Russian demand for air defense systems already appears to be growing in response, with indications including delays in delivering promised systems to India. Further Ukrainian drone attacks might compel Moscow to redeploy existing air defense systems to safeguard refineries. This could potentially create opportunities for Ukraine to strike other high-value targets inside Russia and in occupied Ukrainian regions.

Ukrainian commanders hope drone strikes can undermine Putin’s ability to wage war. The Russian military relies heavily on refined oil products such as gasoline, diesel and jet fuel. Reducing Russian oil refining capacity might have implications for military fuel supplies in the long run, creating logistical challenges for the Russian army in Ukraine and hampering preparations for a major new offensive in summer 2024.

Ukraine’s strategy is also economic and aims to reduce Russian oil revenues. Drone strikes have already disrupted at least 10% of Russian oil refinery capacity, according to Britain’s Ministry of Defense. The process of repairing damage from drone strikes is further complicated by the fact that Russian refineries are heavily reliant of Western technologies. With sanctions limiting Russian access to critical parts and equipment, resuming operations at targeted refineries is likely to be a costly and time-consuming process.

There are already some signs Ukraine’s drone strikes are impacting Russia’s energy industry. On March 1, the Kremlin imposed a six-month ban on gasoline exports in an effort to avoid shortages and prevent price spikes on the domestic market. Nevertheless, gasoline prices have gone up in Russia.

Rising fuel prices could lead to mounting discontent within Russian society. Since the onset of the full-scale invasion, the Kremlin has maintained an unspoken agreement with the Russian public to keep any war-related disruption to an absolute minimum. Indeed, this is one of the main reasons why the invasion was officially termed a “Special Military Operation” rather than a war. The impact of higher fuel prices would be felt throughout Russia, particularly in regions with struggling economies, potentially creating instability.

The economic consequences of Ukraine’s drone strikes are also evident beyond Russia, with Brent crude up nearly 13% this year. With the US currently in election mode, this appears to have alarmed many in Washington DC. For now, Ukraine’s leaders are unmoved by such concerns. On the contrary, they are unwilling to rule out anything that might help secure national survival and believe attacks on Russia’s oil and gas industry are fully justified.

Giorgi Revishvili is a Fulbright Scholar at Texas A&M University’s Bush School of Government and Public Service and a former senior advisor to the Georgian National Security Council.

Central and Eastern Europe needs to rethink its approach to energy security

Pawel Czyzak and Nolan Theisen — Wed, 03 Apr 2024 16:35:37 +0000

With the annual Three Seas Initiative Summit fast approaching and in the wake of the recent joint visit of Poland’s Prime Minister Donald Tusk and President Andrzej Duda with President Joe Biden in Washington, Central and Eastern European (CEE) countries have an opportunity to reframe their energy security outlook—still dominated by natural gas diversification—and increase the role of local green solutions. Analysis of the regional energy landscape finds that CEE countries are planning to expand gas import infrastructure beyond what is needed to replace Russian gas and meet future demand, neglecting abundant renewables potential in the process.

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Navigating outside interests

Historically dependent on Russian fossil fuels, CEE now plays a crucial role as the eastern flank of NATO and a logistics hub for Ukraine aid. Additionally, China has been active in CEE trade and investment through its 14+1 format (formerly 17+1), which includes battery, wind, and solar energy supply chains, while the United States promotes close cooperation with its gas and nuclear industries.

As the largest inter-governmental organization in the region, the Three Seas Initiative (3SI) is uniquely positioned to define CEE’s role among these interests. It includes member countries Estonia, Latvia, Lithuania, Poland, Czechia, Slovakia, Hungary, Slovenia, Croatia, Bulgaria, Romania, Austria, and Greece with the participation of Ukraine and Moldova as partners. However, despite 3SI’s original goal of enhancing North-South collaboration and connectivity, of its forty-one energy priority projects, only one is dedicated to cross-border electricity interconnection and one to an offshore wind farm grid connection, while twenty are linked to gas infrastructure expansion.

CEE’s appetite for gas is no longer growing

Enabling natural gas in CEE is becoming increasingly untenable. Data suggest that by 2025, LNG import capacity across 3SI countries is likely to exceed historical imports of Russian pipeline gas. To use this expected growth in supply, LNG consumption in the region would have to grow well beyond past demand.

Furthermore, evidence is mounting regarding the adverse climate and environmental impacts of LNG. Reflecting global concerns along these lines, the Biden administration suspended approvals for liquified natural gas (LNG) exports, in an effort to better align US foreign policy with its climate ambition.

The potential for stranded assets

Forecasts by European power and gas grid operators estimate that total gas demand in 3SI countries will stabilize around the 2023 level of 70 bcm and reach between 61 and 73 bcm by 2030, depending on the scenario and the displacement of coal in the power sector. Over the same period, LNG import capacity in 3SI countries is expected to reach 53 bcm (by 2030), complemented by 17 bcm from the Baltic Pipe, Balticconnector, and Trans Adriatic Pipeline, as well as 15 bcm of domestic gas production (16 bcm in 2023), reaching 85 bcm in total. This means that by 2030, across 3SI members, the sum of domestic production and gas import capabilities through LNG terminals and pipelines from North and South directions will exceed demand of 3SI countries by 17-40 percent (12-24 bcm).

The outlook varies at the country level, but outsized gas facilities funded by EU taxpayer money in Poland or the Baltic States in particular risk becoming stranded assets. By 2040, demand is expected to decrease due to intensified energy efficiency measures and growth in heat pump installations replacing gas boilers.

The energy security risks of LNG reliance

While LNG has played an indispensable role filling the Russian supply gap, security concerns remain for certain landlocked CEE and 3SI countries with unequal access to market-based LNG. The reality is that all importers and consumers of LNG face risks from global fuel price fluctuations, contract renegotiations, and competition from buyers willing to spend more. Pakistan’s experience in 2022 and 2023 highlights these challenges. Whenever China’s economic recovery arrives, it will have major ramifications across the global LNG market. The EU’s gas import bill ran close to €400 billion in 2022 alone—more than three times the level in 2021, showing how high the price of energy security can be.

The Three Seas Summit is an opportunity to pivot from gas to renewables

This year’s Three Seas Summit provides a unique opportunity for CEE governments to articulate a long-term vision pivoting away from fossil fuel interests toward clean, affordable, and local renewables, enabled by an expanded interconnector network. The new pro-Europe and pro-climate government in Poland, the largest 3SI member, could lead the charge for 3SI to transition away from gas use.

The opportunity to implement this change is significant, especially for the Lithuanian 3SI presidency and its Baltic Sea neighbours, which are on track to deploy 15 GW of offshore wind by the early 2030s. Capitalizing on the wind and solar potential would increase the share of renewables in 3SI’s electricity generation from 39 percent today to 67 percent by 2030, and lead to a 27 percent reduction in power prices compared to a current policy scenario.

Realization of this renewable potential would bring major economic and security benefits. The expansion of offshore wind in the region is already creating hundreds of jobs, and lower electricity prices will attract further manufacturing and industry investments. Examples from Ukraine show that distributed energy generation and interconnection provides better resilience in times of war than a traditional, centralized power system.

However, grid expansion and upgrades have to keep pace with the electrification of the economy. The European Commission estimates that by 2030, €584 billion in investments are necessary to modernize the aging grid infrastructure, making it fit for variable renewables and new demand from electric vehicle charging points and residential heat pumps. This presents a vast investment opportunity for the next phase of the Three Seas Initiative Investment Fund, especially in the area of cross-border interconnection.

With the expansion of wind and solar, the CEE region can become a model for reduced dependency on fossil fuel imports—and transform into a European clean energy hub.

Pawel Czyzak is Central and Eastern Europe lead at Ember.

Nolan Theisen is a senior research fellow at Slovak Foreign Policy Association.

EnergySource

EnergySource Oct 4, 2023

What’s next in the two-front war against climate change and energy insecurity?

By Robert F. Ichord, Jr.

Electrification is a powerful weapon in the battles against climate change and the weaponization of energy supply. To improve overall system reliability and resilience, the United States and European Union must decarbonize, meet new consumer and industrial demands, and expand transmission capacity.

Climate Change & Climate Action Energy & Environment

EnergySource Aug 31, 2023

A Three Seas Chamber of Commerce could enhance energy diversification across Central and Eastern Europe

By Olga Khakova, Paddy Ryan, and Bailee Mathews

Central Europe Eastern Europe

EnergySource Feb 21, 2024

Escalating Middle East conflict means North America must bolster global energy security

By Julia Nesheiwat

China Energy & Environment

Learn more about the Global Energy Center

The post Central and Eastern Europe needs to rethink its approach to energy security appeared first on Atlantic Council.

US ratification of the ocean treaty will unlock deep sea mining

Alex Gilbert and Morgan Bazilian — Tue, 02 Apr 2024 18:13:47 +0000

Hundreds of former political and military leaders are calling for the US Senate to ratify the UN Convention on the Law of the Sea (UNCLOS), the impetus being to open up deep sea mining to supply critical minerals needed for clean energy and military technologies. UNCLOS, adopted in 1982, is the primary international treaty governing state activities in oceans, particularly in areas beyond national jurisdiction that hold seabed minerals. Deep seabed resources include highly valued minerals such as cobalt, nickel, and rare earths. Recent technological advances and new companies are making their extraction economically feasible for the first time.

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The United States has yet to ratify the UNCLOS due to historic opposition toward its international regulation of seabed resources in the High Seas. This lack of participation bars US companies from directly participating in what could be a significant new industry. It has already led to dominance of deep sea exploration permits by geopolitical competitors—China and Russia have together won nine permits, including in areas historically claimed by the United States. By ratifying the Law of the Sea treaty, the United States can bolster critical mineral supply security, enter deep sea markets, and enhance national security.

Governments and private industry have long worked to enable the extraction of minerals from the deep seabed for a range of resources, including cobalt crusts, hydrothermal sulphides, and polymetallic nodules. Of these, polymetallic nodules are the most sought after—ocean processes create these billiard-ball-sized clumps of valuable metals. Ore grades in nodules significantly exceed those on land, making their extraction both cost and emissions efficient. The largest collection of nodules is located in an area called the Clarence Clipperton Zone (CCZ), which stretches the Eastern Pacific between Hawaii and Mexico. Recent technological developments, particularly in remotely operated vehicles and underwater vehicles, mean that deep sea resources are potentially economical today.

Reliable critical mineral supplies are increasingly important for the global economy and security. They are needed to meet clean energy needs, including electricity infrastructure, electric vehicles, and renewable energy. Many advanced technologies for defense applications, particularly electronics, require stable and growing supplies of these rare minerals. China dominates extraction and processing of most critical minerals, while the United States is a major importer for all minerals that deep sea mining might supply.

Governance of deep sea mining depends on location. Under UNCLOS, seabed resources within exclusive economic zones are governed by the relevant nation. Norway recently became the first country to authorize mining of such resources in their jurisdiction, but most resources are outside such zones. Resources in the remaining half of the ocean, called the High Seas, are governed by the International Seabed Authority (ISA). Although the United States played an active role in negotiating UNCLOS and considers most of it customary international law, it has not ratified the treaty due to Senate opposition to the role of the ISA. Among other reasons, some senators historically opposed the ISA’s international royalty mechanism, and expressed concerns about precedent for other domains like outer space. Without ratification, the United States cannot directly participate in the ISA’s governing process, and American companies cannot receive ISA mining permits.

These criticisms are not unfounded. The ISA has existed for decades and yet is struggling to establish a governance framework. The small nation of Nauru is forcing the issue legally, and the ISA is close to finalizing its mining permit system, without clear environmental protection. Global environmental groups have called for a moratorium on deep sea mining until scientists can conduct more research on environmental impacts.

Still, one of the primary objections (that an ISA-like royalty mechanism would be created for space exploration) to ratifying the law of the sea is no longer valid. In the last decade, the United States and many other countries have passed domestic legislation legalizing space mining without a space equivalent to ISA. This approach has been legitimized by the multilateral US-led Artemis Accords, which now has thirty-five signatories including all major space powers except China and Russia. The United States has secured a governance pathway forward for space resources that does not repeat the limitations of the ISA.

The letter calling for ratifying the Law of the Sea is the culmination of a growing bipartisan agreement around securing critical minerals in the face of an ongoing trade war with China. A group of bipartisan senators led by Senators Lisa Murkowski, Mazie Hirono, and Tim Kaine introduced a resolution explicitly calling for ratification. Congress, in both informal letters and directed reports, is pushing for studies on deep sea resources in US waters and the ability to establish domestic processing infrastructure. In late 2023, the US State Department initiated an extended continental shelf claim into the Arctic and Pacific oceans, exerting jurisdiction over seabed mining for certain areas beyond its exclusive economic zone, a practice explicitly outlined in UNCLOS. However, China and Russia have challenged this new assertion, arguing at ISA that the US cannot make the claim because it has not signed UNCLOS.

Ratifying UNCLOS would also bolster US diplomatic power. The Houthi campaign in the Red Sea is disrupting 20 percent of global maritime trade. Multiple submarine telecommunications cables in the Baltic Sea and Red Sea have been severed in the last year, threatening global internet connectivity. For more than a decade, China has been violating the principles of the LOS with their actions in the South China Sea and elsewhere. UNCLOS ratification would greatly strengthen US credibility in seeking international coalitions to push back against these challenges.

The future of deep sea mining remains uncertain. The burgeoning industry faces technical, economic, regulatory, environmental, and political challenges. The abyssal plains of the deep seabed hold unique biodiversity and are fragile, so mining activities must readily incorporate environmental best practices to limit impacts and gain social license to operate. Nevertheless, its potential benefits to meeting critical mineral supply are substantial, as are the geopolitical stakes of establishing a leadership position. The urgency of securing critical mineral supply means the time is right for the United States to reconsider its formal participation in UNCLOS.

Alex Gilbert is a PhD student in space resources and a fellow at the Payne Institute for Public Policy at the Colorado School of Mines.

Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines.

EnergySource

EnergySource Aug 16, 2023

One year after the IRA, the hard work to build resilient mineral supply chains is only beginning

By Reed Blakemore, Paddy Ryan

Twelve months since the IRA’s bet big on alternative mineral supply chains, the clean energy commodities market is changing. Washington’s strategy must change along with it.

Energy & Environment Energy Transitions

EnergySource Jul 11, 2023

How cities can drive the energy transition in the Western Hemisphere

By Maia Sparkman, Willow Fortunoff

Expanding access to critical minerals and increasing manufacturing capacity is at the top of the Biden administration’s decarbonization agenda. Mayors, who have shown their ability to deliver on domestic investment projects, have begun exploring opportunities for international collaboration.

Americas Climate Change & Climate Action

Testimony Sep 15, 2023

Planning around strategic supply chains will require more than just ‘listing’ of critical minerals

By Reed Blakemore

We need to ensure that our minerals policy does not become overly clerkish, prescribing problems rather than solving them. Capturing the supply/demand dynamism between each critical mineral will illuminate the pathways to build a cohesive minerals strategy.

Energy & Environment Energy Transitions

Learn more about the Global Energy Center

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Russia’s new air offensive leaves Ukraine facing humanitarian disaster

Aura Sabadus — Sun, 31 Mar 2024 23:02:38 +0000

In recent weeks, Russia has launched the largest bombing campaign of the war with a series of major overnight attacks targeting Ukraine’s civilian energy infrastructure. This has resulted in comprehensive damage to the Ukrainian power grid and plunged millions into darkness. Unless Ukraine urgently receives additional air defense systems and ammunition from its Western partners, large parts of the country may soon be on the brink of a humanitarian catastrophe.

Russia’s new air offensive began in the second half of March. It has featured a combination of ballistic missiles, cruise missiles, and kamikaze drones, with a wide range of infrastructure objects targeted throughout the entire country. The complex nature of the strikes suggests detailed knowledge of Ukraine’s energy system. In a little over a week, this bombing campaign has succeeded in destroying multiple power plants, damaging a gas storage site, and disabling electricity transmission infrastructure across Ukraine.

In a further indication of Russia’s intention to escalate the air war, a number of Ukraine’s hydroelectric power plants have also been targeted in the latest wave of attacks. This is raising concerns over a potential ecological disaster if dams situated on some of Ukraine’s biggest waterways are breached.

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While there is no official data for the total damage caused to Ukraine’s civilian energy infrastructure by Russia’s new air offensive, the country’s largest private power provider, DTEK, confirmed on March 30 that it had lost 80 percent of its generating capacity due to the recent wave of attacks.

Much of this damage was to facilities that had only recently been repaired following earlier Russian attacks in 2022 and 2023. “Some of the units that were put into operation two months ago are gone,” commented DTEK executive director Dmytro Sakharuk. “We had rebuilt roofs, installed transformers, repaired turbines and generators. It’s all in ruins now.”

Since March 22, cities across the country including Kharkiv in the east and Odesa in the south have suffered temporary blackouts. Many residents continue to experience sporadic access to electricity. Even in regions where the population has not been disconnected from the grid, Russian attacks have caused significant disruption and forced industrial shutdowns.

With at least 2GW of capacity damaged or destroyed across the country, Ukraine is now looking to maximize electricity imports from EU neighbors. Prior to the recent escalation in Russian bombing, Ukraine needed to use around 0.5GW of cross-border capacity to import energy from EU countries. This has now tripled to 1.5GW, which is close to the maximum technical capacity of 1.7GW provided by existing interconnection lines.

The cost of fixing the damage caused by the most recent wave of Russian attacks will be high. This is expected to significantly increase earlier World Bank estimates that already placed Ukraine’s wartime civilian infrastructure repair bill at over $135 billion. DTEK alone may have to find an additional $200 million to rebuild facilities. Understandably, some are questioning whether it currently makes sense to invest such large sums in another round of repairs given the potential for fresh Russian airstrikes.

Eurasia Center events

Read the full article here.

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ever since the start of the full-scale invasion a little over two years ago, Russia has deliberately targeted Ukraine’s civilian energy infrastructure. By doing so, the Kremlin hopes to disrupt economic activity, break the Ukrainian population’s will to resist, and force millions of civilians to flee their homes.

These efforts have so far proved unsuccessful. Ukraine’s resilience is in large part due to the courage and ingenuity of the country’s engineers, who have repeatedly exposed themselves to the dangers of missile and drone strikes in order to repair power plants, substations, generators, and distribution lines.

The herculean efforts of Ukraine’s energy sector workers cannot be expected to continue indefinitely, however. This is especially true in the current circumstances, when recently repaired infrastructure is once again being targeted and destroyed by Russian airstrikes.

The only long-term solution to the threat posed by Russian bombardment is enhanced air defenses. Ukrainian officials including President Zelenskyy have been vocal in recent days in their calls for the country’s partners to urgently deliver new air defense systems and fresh interceptor missiles.

The current deadlock in the US Congress over a major new Ukrainian aid bill has raised serious doubts over the future of Western military support for Ukraine. With supplies now running low, Ukraine is already finding itself forced to ration ammunition on the front lines and in defense of its cities. This is emboldening Russia, and may have been a contributing factor behind the current surge in aerial attacks.

If Ukraine’s air defenses are further depleted, there can be no serious doubt that Russia will seek to destroy the country’s civilian energy infrastructure entirely. This would leave tens of millions of Ukrainians without access to basic amenities such as electricity, heating, water, and internet. The stage would be set for a vast humanitarian crisis that would have grave consequences for the war itself and for the whole of Central Europe, with an unprecedented wave of migrants likely to enter the EU from Ukraine.

The International Criminal Court in The Hague has already issued arrest warrants for two Russian military commanders in connection with earlier Russian attacks on Ukraine’s civilian energy infrastructure. While Russia alone bears responsibility for these war crimes, the West’s continued failure to supply Ukraine with adequate air defenses makes them complicit in the unfolding humanitarian crisis.

Donovan and Nikoladze cited by Yahoo Finance on oil trade between China, Russia, and Iran

stanleywu — Sat, 30 Mar 2024 18:23:00 +0000

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Khakova quoted in Energy Intelligence on Russian energy sanctions

smeadows — Thu, 28 Mar 2024 15:15:30 +0000

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Shaffer in Real Clear Energy: Washington Denies a Bedrock of Warfighting

smeadows — Tue, 26 Mar 2024 16:35:00 +0000

The post Shaffer in Real Clear Energy: Washington Denies a Bedrock of Warfighting appeared first on Atlantic Council.

Ellinas in Financial Mirror: Egypt’s natgas woes continue

smeadows — Tue, 26 Mar 2024 16:35:00 +0000

The post Ellinas in Financial Mirror: Egypt’s natgas woes continue appeared first on Atlantic Council.

Ukraine paves way for green energy future amid Russia’s escalating attacks

Aura Sabadus — Tue, 26 Mar 2024 14:38:33 +0000

In a week when Russia launched some of its most extensive drone and missile attacks against Ukraine’s civilian electricity infrastructure since the start of war, Ukrainian MPs passed a law that could help define the country’s future as one of the biggest suppliers of green energy to Europe. In an historic vote, the Ukrainian parliament lifted restrictions on the export of biomethane, paving the way for a major expansion of Ukraine’s green gas production.

Boasting the largest agricultural landmass in Europe, Ukraine’s biomethane potential is unrivaled across the continent. The country is not only able to produce volumes that could singlehandedly cover the equivalent of a medium-sized European nation’s annual natural gas consumption; it can also do so at prices that are comparatively cheaper than other EU states.

Although Ukraine adopted legislation regulating the production of biomethane last year, it could not realize its full potential because of restrictions introduced at the start of Russia’s full-scale invasion in February 2022. Immediately after the start of war, Ukrainian policymakers imposed a blanket ban on the export of natural gas, fearing the country would be left without supplies to keep the lights on or provide heating to consumers.

While this ban was designed with natural gas in mind, wartime restrictions also extended to biomethane because it is approximately equal to natural gas in quality. As a result, many companies which had invested in producing biomethane using biomass crops had to suspend production or postpone investments as they could not access lucrative European markets.

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With restrictions now lifted, biomethane companies are aiming to export the first volumes to Germany by May. Ukraine is expected to develop its own EU-aligned guarantees of origin which will demonstrate compliance with European Union sustainability criteria. These guarantees will then be linked to the EU’s Union Database for Biofuels (UDB), becoming part of the EU’s single market. Although this process may take two years to complete, Ukrainian companies looking to start exports immediately will be able to do so by providing customs-agreed certificates of compliance or proofs of sustainability.

Ukraine’s enthusiastic embrace of biomethane will help the country move further away from its past reliance on Russian gas and coal imports. Crucially, this shift toward green energy will also support Ukraine’s efforts to monetize its agricultural resources in a way that benefits both local producers and European consumers.

Five biomethane refining plants are currently gearing up to produce and export 77 million cubic meters of biomethane this year. Another ten plants are expected to enter commercial operation in 2025, nearly doubling production. As there is keen interest from large international customers to secure more biomethane from Ukraine, there are expectations that output may be scaled up even further to cover 20% of the EU’s biomethane demand of 35 billion cubic meters by 2030. Within 20 years, Ukraine’s annual output could potentially rise to around 22 billion cubic meters, one of the highest expected levels in Europe.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

To a significant degree, the Ukrainian biomethane industry’s success depends on its ability to export fuel to Europe. Under current regulations, Ukraine doesn’t subsidize internal production, which means it is only viable if exported to countries which have financial support schemes in place. Beyond that, there are also a number of challenges related to potential opposition from European farmers who may fear Ukrainian competition.

Following the introduction of wartime regulations easing Ukrainian access to EU markets, farmers in a number of EU countries have been pushing for greater import controls on Ukrainian agricultural products. This is forcing European politicians to address domestic agricultural sector opposition while also continuing to support Ukraine in the fight against Russia. Since biomethane production is an emerging industry, Ukrainian and EU policymakers have a window of opportunity to find mutually attractive solutions capable of easing Ukraine into the European single market while preparing farmers to face fair competition.

The most important and immediate challenge that Ukraine faces is the Russian threat to its energy infrastructure. A series of Russian missile and drone strikes in late March represented the largest concentrated attack on Ukrainian energy infrastructure since the start of the full-scale invasion in February 2022. This has added to the comprehensive damage already sustained by Ukraine’s energy infrastructure over the past two years. Ukraine’s new biomethane plants will be dotted across the country, but they will not be completely shielded from similar strikes.

To protect the country’s infrastructure and help Europe secure clean sources of energy, Ukraine urgently needs additional air defense systems in large quantities. Failure to act will endanger more Ukrainian lives and could also undermine Europe’s chances of securing competitively-priced green energy.

Ellinas in Financial Mirror: Oil prices to keep on rising

smeadows — Mon, 25 Mar 2024 19:22:00 +0000

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Goldwyn quoted in S&P Global Commodity Insights on Venezuelan sanctions

smeadows — Mon, 25 Mar 2024 13:56:08 +0000

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Tobin and Webster named in EU Parliament Briefing on Red Sea threats

smeadows — Sun, 24 Mar 2024 13:36:00 +0000

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Peacemaking through curbing Russian oil and gas exports

Svitlana Romanko and Oleh Savytskyi — Wed, 20 Mar 2024 13:22:59 +0000

Ukraine seems to have found an effective asymmetrical response to the massive waves of deadly missile attacks that Russia has unleashed against Ukrainian cities since early January. A number of Russian oil refineries and oil terminals have been hit with precision strikes, attributed to new Ukrainian long-range drones.

By targeting fossil fuel exports—the financial lifeline of the Kremlin’s regime—this response has had an impact. In January Russia’s seaborne oil product exports fell 8.6 percent from a year earlier and 2 percent from the previous month to 10.8 million metric tons, owing to lower processing capacity and unplanned repairs.

Drone strikes at critical processing and export facilities bring financial pain to Russia. Repairs are costly and time-consuming, especially because of sanctions that limit access to Western technology, which is making the replacement of destroyed equipment difficult.

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However, Ukraine’s efforts to repel Russian attacks would be made less challenging if Europe and the United States did even more to throttle Moscow’s oil and gas exports by utilizing the full power of sanctions.

The tragic loss of human life in Ukraine, including hundreds of children, is still too often paid for by cash that Russia receives from the export of oil and gas enabled by loopholes that persist in the sanctions regime imposed on Moscow by the United States and the European Union. Amid the ongoing struggle for peace and sovereignty in Ukraine, governments that believe in the rule of international law must do more. The United States, EU, and the Group of Seven (G7) industrialized nations should be consistent and strict in enforcing sanctions against Russian fossil fuels.

Western governments have strong tools to dry up the Kremlin’s war budget. They can do this by plugging the gaps in sanctions against Russian oil and gas exports, strengthening them further, and thereby severing the critical revenue stream supporting the Kremlin’s oppressive regime and its brutal war machine.

There are five specific actions that the G7 and EU can take in this direction: enforce price caps on Russian oil and oil products; prevent the expansion of Russia’s shadow fleet of oil tankers; close the refining loophole; fully ban Russian liquefied natural gas (LNG) imports; and take decisive actions to reduce demand for oil and gas in the long-term.

Civil society organizations are urging Western leaders to take these steps. More than 290 groups from across the globe addressed the G7 and EU leaders with this call in February, as Ukraine marked the tragic two-year anniversary of the full-scale invasion.

There is an urgent need to eliminate loopholes in sanctions against Russian fossil fuels to prevent further escalation of the Kremlin’s aggression in Europe outside of Ukraine.

The shadow of Russia’s military plans looms ominously. This is evident in the 2024 federal budget, with a staggering allocation of resources to the military-industrial complex, not seen since Soviet times. This is a startling shift in budgetary focus, with a third dedicated to the army. This militarization signifies a perilous path toward conflict intensification, threatening regional stability. In 2024, Russia’s “national defense” budget will expand to 10.8 trillion rubles ($110 billion), marking a 70 percent increase from 2023 and more than doubling from 2022. It is three times higher than the pre-war 2021 allocation.

Regrettably, Europe and the United States inadvertently contribute to this war chest. The refining loophole in Western sanctions against Russian oil exports, meticulously highlighted by Global Witness, remains a massive funding source feeding Russia’s aggression, a fact that should not be overlooked.

While Western governments have banned the imports of crude oil, petrol, diesel, and jet fuel that originate in Russia, their countries can still import refined oil products produced from Russian crude in other nations, like India, China, Turkey, or the United Arab Emirates. In 2023 sales of Russian crude oil to refineries in India went through the roof. These Indian refineries capitalized on selling the refined products to G7 markets, where direct supplies of Russian oil were banned. The refining loophole increases the demand for Russian crude oil and enables higher sales in terms of volume, while keeping its price up. As a result, the price of Russian crude oil does not collapse in the global market even with the Western sanctions.

OPEC members’ decision to restrict exports of additional volumes of oil to world markets benefits Putin, and contributes to Russia’s strategy to weaponize energy supply. The refining loophole also creates a space for cooperation between Russia and OPEC countries, which can import Russian oil to refine or mix it with other blends of crude to conceal origin and profit from it.

Similarly, Europe still buys significant volumes of Russian natural gas, not so much through pipelines, but increasingly in the form of LNG. Key Russian LNG importers such as France, Spain, and Belgium have little excuse for continuing to do business with Russia. The gas storage in Europe is ample, and projections indicate an energy surplus bolstered by record-breaking clean energy expansion and alternative LNG supplies set to come online in 2024.

In total, since the start of the full-scale invasion in Ukraine on February 24, 2022, Russia has amassed more than $650 billion in profits from fossil fuel exports. Yet, if international sanctions on Russia’s fossil fuel industry are maintained and rigorously enforced, the International Energy Agency projects that the Kremlin’s profits from oil and gas could plummet by 40 to 50 percent by 2030.

The West has to act collectively to cripple the Kremlin’s fossil fuel export lifeline to help end the war in Ukraine faster. The future of Ukraine’s security and human dignity hinges on this critical moment of action, and world leaders must take action now to stop funding Russia’s aggression.

Svitlana Romanko, Founder and Director of Razom We Stand

Oleh Savytskyi, Campaigns Manager at Razom We Stand

EnergySource

EnergySource Feb 21, 2024

Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

By Atlantic Council experts

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EnergySource Dec 13, 2023

The US and NATO must clamp down on Russian fossil fuels to end the war in Ukraine

By Svitlana Romanko and Oleh Savytskyi

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What to do about Russia’s energy trojan horse

By Olga Khakova, Charles Lichfield

Economic Sanctions Economy & Business

Learn more about the Global Energy Center

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Webster in The Wire China: A Russian Nuclear Anti-Satellite Weapon Is Not Good News for China

smeadows — Sun, 17 Mar 2024 14:29:57 +0000

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Hydrogen challenges in a post-45V world

Matthew Blieske and Joseph Webster — Thu, 14 Mar 2024 19:05:55 +0000

Recently, the US Treasury released its critical hydrogen guidance, called 45V, but the domestic hydrogen ecosystem has yet to see major positive final investment decisions (FID). While 45V is an undeniably important element in determining the future of the industry, and its related emissions, insufficient attention is being paid to the substantial technical, commercial, and regulatory challenges that must be overcome if hydrogen is to realize its potential as a key decarbonization vector.

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45V is a tax credit for the production of what the US Treasury terms “qualified clean hydrogen.” The US Treasury released its 45V draft guidance in late December, imposing strict guidance on the so-called “three pillars” of temporal matching, additionality, and deliverability.

Critics of the 45V guidance argue it is too restrictive and will prevent the industry from reaching scale, or even cede the sector to China. Conversely, environmental groups and academics are broadly supportive of the Treasury’s decision, holding that hydrogen’s ambitions must match its thermodynamic and technoeconomic realities, as insufficient restrictions could actually increase US emissions at the cost of tens of billions of dollars.

While 45V will have enormously consequential impacts on US hydrogen’s scalability, as well as emissions, it’s not the only factor affecting the industry. These challenges include the following:

Elevated interest rates and lengthy permitting times for new clean infrastructure are slowing capital-intensive energy deployment, including clean hydrogen.
Technology and supply chain issues are also impacting hydrogen development. While hydrogen production tax credits will improve project costs, they do not address persistent issues with integration of the supply chain and onsite systems. Hydrogen suppliers are inexperienced, with many having just come out of a technology-development phase. They often lack operations support and robust system design around the core technology.
Poor technical integration due to the lack of robust modern digital platforms that can communicate with and manage assets across the supply chain impairs a project’s ability to pass FID. Hydrogen generation projects will not pass FID unless offtake is secured. Integration challenges will continue to delay FIDs.
Technical scope will be highly project dependent, making economies of scale difficult to achieve. Hydrogen production projects will change significantly in scope—and cost—depending on the offtaker.

For instance, mobility end users will require significant hydrogen storage, compression trains or liquefaction trains, and export systems. Conversely, industrial customers will seek to develop systems designed specifically to avoid potential unintended consequences of hydrogen blending in gas pipelines. These technical requirements from the offtaker impose significant scope change to the production project.

Infrastructure limitations will result in market inefficiencies, adding a commercial hurdle to scaling hydrogen. Due to limited pipeline infrastructure, hydrogen markets have virtually no inter-regional connectivity with one another, limiting the number of buyers and sellers in each market.

To wit, there are only 1,600 miles of hydrogen pipelines in the United States, mostly along the Gulf Coast. In comparison, nationwide there are about 3 million miles of natural gas pipelines. Additionally, existing hydrogen networks are typically private-carrier pipelines, which are used by incumbents but not necessarily open to new producers.

Limited inter-regional trade in clean hydrogen means that the number of buyers and sellers will be highly constrained in local markets, especially in parts of the United States where there is little or no existing merchant trade in hydrogen. This could create considerable market distortions in places where industrial-scale clean hydrogen consumers will be the dominant—if not sole—offtaker in their local market. Markets where there is a sole buyer—a monopsonist—are prone to inefficiencies.

With some hydrogen markets unable to rely on fully competitive market structures, which rely on many buyers and many sellers, the development of the technology may be constrained. Notably, credit conditions for projects seeking to sell to a sole offtaker may be challenging.

The US hydrogen hubs, supported by funding from the Department of Energy, aim to solve this foreseeable problem by building an ecosystem of many buyers and sellers, aggregating demand and supply to create a more efficient market. Indeed, in existing ports and industrial zones, there will be few risks of a monopsony problems due to varied potential customers. Still, less developed H2 markets will be subject to this risk.

Most importantly, a lack of reliable demand exists for green hydrogen in any volume outside the heavy mobility market in California, and grey hydrogen producers will not be incentivized to switch until price parity is achieved, either via carrots (such as incentives in 45V), or sticks (such as pollution fees or regulatory measures). The issue is one of price, and it’s not clear that the combination of carrots and sticks in enough to achieve a switch from grey hydrogen to lower carbon products.

In sum, while the Treasury Department’s guidance on 45V is grabbing a lot of attention, multiple other factors impacting the clean hydrogen industry must be addressed. Industry and policymakers need to grapple with these challenges and identify effective solutions.

Matthew Blieske is the former CEO and co-founder of LIFTE H2, which develops and deploys novel end-to-end hydrogen supply chains. Blieske sold his stake in the company in October 2023 and is now an independent hydrogen consultant.

Joseph Webster is a senior fellow at the Atlantic Council. This article represents their own personal opinion.

EnergySource

EnergySource Mar 14, 2023

Harmonizing hydrogen ambitions and realities

By William Tobin, Joseph Webster

Hydrogen’s chemical properties determine its most optimal uses. Policymakers should orient deployment toward areas in which hydrogen makes the most sense as a tool for decarbonization and away from areas in which it does not.

Energy & Environment Energy Transitions

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A deeper Europe-MENA relationship could aid a secure transition in Europe and create lucrative low-carbon export opportunities and industries in North Africa. Hydrogen could be the cornerstone of these new ties, and COP27 could be the perfect forum to develop them.

Energy & Environment Energy Markets & Governance

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Can hydrogen reconcile energy demand with climate concerns?

By Mitali Mirle

Hydrogen technology represents a promising, multifaceted pathway that could offer many industries a new strategy for navigating the transition to net zero emissions. However, the current cost of deployment seems to be the biggest obstacle for widespread adoption.

Climate Change & Climate Action Energy Transitions

Learn more about the Global Energy Center

Founding Chairman, Global Energy Center

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Reducing Europe’s reliance on Russian energy imports: Key strategies under five scenarios

Richard L. Morningstar, András Simonyi, Olga Khakova, Paddy Ryan — Thu, 14 Mar 2024 15:24:10 +0000

The war in Ukraine is entering a critical phase. The heavy hits to the Russian economy, the country’s diminished energy markets position, and the hundreds of thousands Russian troops dead and wounded have not deterred Russian President Vladimir Putin’s imperialistic agenda. Meanwhile, Ukrainians have continued to confront Russian aggression, bolstered by aid from the West.

That support, however, is being tested. New conflicts around the world are forcing the alliance to become more cognizant of the limits to its resources and of members’ domestic political will. Critically, Russia’s energy war is pressuring electorates’ will to continue support for Ukraine across the West, as energy price inflation remains a persistent risk. Elections in 2024 may become referenda in part on Western publics’ appetites to continue to support Ukraine.

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The democratic world must take every reasonable step to ensure that Ukraine survives as a sovereign democracy with its internationally recognized territory intact. Secondarily, the forces of democracy must consider the future of energy balances in Europe and Russia’s role in global energy markets. Diversification from Russian flows is not guaranteed in perpetuity without a transatlantic strategy with realistic pathways for implementation.

To better understand how the war’s conclusion—or lack thereof—will impact the options available to transatlantic policymakers, this report analyzes European security across five general scenarios—a Ukrainian victory, a negotiated settlement, a frozen conflict, a protracted conflict, and a Russian victory—and aims to understand the impacts of the war’s potential outcomes on transatlantic energy security, in order to propose strategies for dealing with the unique fallout from each scenario.

READ REPORT

AUTHORS

Staff

Richard L. Morningstar

Geopolitics & Energy Security Oil and Gas

Fellow

András Simonyi

Energy & Environment Europe & Eurasia

Staff

Olga Khakova

Geopolitics & Energy Security Europe & Eurasia

Former staff

Paddy Ryan

Energy & Environment Energy Transitions

OUR WORK

Issue Brief Aug 2, 2023

Transforming Ukraine into a European energy hub

By Richard L. Morningstar, András Simonyi, Olga Khakova, Paddy Ryan

In this issue brief, Global Energy Center experts explore the potential for Ukraine’s energy sector to strengthen European energy security and decarbonization objectives. The brief explores how Ukraine can reform its energy sector to attract investment and create new revenue streams, and how transatlantic partners in government and the private sector can support Ukraine’s clean energy transformation.

Eastern Europe Energy & Environment

Issue Brief Apr 6, 2023

Accelerating the energy transition to strengthen European energy security: Key barriers to overcome

By Richard L. Morningstar, András Simonyi, Olga Khakova, Paddy Ryan

The role of decarbonization in European energy security, the obstacles impeding clean energy development, and the opportunities for transatlantic collaboration towards low-carbon energy security.

Energy & Environment Energy Transitions

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Ukraine expands EU energy exports in fresh display of wartime resilience

Aura Sabadus — Tue, 12 Mar 2024 16:17:16 +0000

Since the beginning of March, Ukraine has been powering thousands of homes in neighboring European countries, exporting large amounts of clean energy from solar and hydro plants.

Data from Ukraine’s electricity grid operator, Ukrenergo, indicates that the country is making full use of its interconnection capacity to sell electricity to Hungary, Moldova, Romania, Poland, and Slovakia, with over 13 gigawatt hours (GWh) flowing across the border during daylight hours. Outflows are driven by ample renewable production in Ukraine at this time of year, which makes it commercially attractive to sell to EU markets during the day, when the country has surplus solar production. At night, flows tend to reverse, allowing Ukraine to import from Europe when internal production from other sources may be insufficient.

The fact that in spring 2024 Ukraine is not only able to produce electricity but also export to the EU at full throttle is testament to the country’s extraordinary wartime resilience. Over the past two years, Russia has attempted to destroy Ukraine’s energy infrastructure as part of Vladimir Putin’s full-scale invasion. These efforts have included a six-month campaign of intensified air strikes against power stations and transmission lines during the first winter of the war that caused widespread blackouts and plunged the country into darkness amid temperatures well below freezing. The World Bank estimates the cost of wartime damage to Ukraine’s energy sector at $12 billion, with attacks ongoing.

Ukraine’s renewable capacity has also been badly hit. Invading Russian forces have bombed or occupied approximately 90% of Ukraine’s wind capacity along with half of its solar plants, and are also accused of destroying the Nova Khakovka hydro plant, one of the largest in the country.

The human cost of keeping the lights on in Ukraine has been staggering. On the second anniversary of the full-scale invasion in February 2024, leading Ukrainian electricity producer DTEK stated that 252 of its employees had been killed while working to keep the system operational. Meanwhile, the company’s electricity infrastructure had sustained over 9,700 attacks in the past two years. DTEK’s experience is thought to be typical among Ukraine’s energy sector companies.

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The Ukrainian energy sector has been demonstrating its resilience since the very first night of Russia’s full-scale invasion, when Ukraine unplugged from the old Soviet grid in preparation for planned synchronization with the rest of Europe. This set the tone for more wartime progress in the following months, with Ukraine fully connecting to European infrastructure and starting commercial flows to the region in summer 2022, more than a year earlier than expected.

Further advances were achieved during the second year of the Russian invasion. Ukrenergo managed to more than triple importing capacity from 500 megawatts (MW) in January 2023 to 1,700MW this year, while export capacity to Europe now exceeds 700MW per month, enough to power more than 700,000 homes.

Even as Russian missiles and drones were striking Ukraine’s electricity infrastructure, Ukrainian engineers were busy building a new interconnection line with Poland, which has facilitated the expansion of capacity. Similar works are planned with Romania and Slovakia, although details remain confidential for security reasons. Just as important has been Ukraine’s ability to align its own domestic regulations governing commercial flows with those of the EU, ensuring that import or export transmission capacity is allocated fairly and transparently.

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Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine’s efforts to expand its electricity interconnections with neighboring European countries will not only further increase its resilience, allowing it to import energy in case of shortages; it could also turn Ukraine into a major future exporter of clean energy to the region. Much will depend on Ukraine’s ability to rebuild the renewables sector by scaling up its installed wind, solar, biomass, and hydro capacity, and by deploying a nimble decentralized transmission system with self-contained clusters of production close to high-demand urban areas.

Ukraine’s potential for renewable power generation is almost unparalleled in Europe, with solar capacity alone thought to be capable of expanding to more than one-third of the EU’s existing total. Onshore wind plants could eventually be even larger, with the potential to make up half the EU’s current total of 255GW.

This large renewable potential, combined with Ukraine’s plans to expand its electricity interconnections with continental Europe, could provide a real boon to regional countries looking to break their addiction to polluting fossil fuels. However, none of this will materialise if Western partners fail to unblock financial and military support to protect Ukraine’s infrastructure and help the country defeat Russia.

Ukraine currently needs additional air defense systems to protect energy generation facilities and safeguard key parts of the country’s transmission infrastructure. The longer US and European partners delay sending aid, the easier it will be for Russia to undo Ukraine’s energy sector gains and jeopardize the safety of transmission lines connecting the country to the EU.

Over the past two years, Ukraine has more than proven its resilience. The country has repeatedly demonstrated its ability to complete energy infrastructure projects well ahead of time in the most challenging of circumstances. This is one of the success stories of the Ukrainian war effort. It is vital that the country’s international partners now provide the support that will enable Ukraine to consolidate these gains.

smeadows — Mon, 11 Mar 2024 20:05:31 +0000

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Why Washington’s approach to Black Sea security may be about to change—for the better

Arnold C. Dupuy — Mon, 11 Mar 2024 19:32:33 +0000

Washington’s engagement with the Black Sea has ebbed and flowed in the post-Cold War era. The lack of consistent focus has contributed to relative insecurity in the littoral states and emboldened Russian aggression.

But as the region continues to be destabilized by Russia’s war on Ukraine, there is a sign that this period of US neglect may be ending. This sign comes in the form of Section 1247 of the National Defense Authorization Act for Fiscal Year 2024 (NDAA), which US President Joe Biden signed on December 22 last year, authorizing a total national security budget of $886 billion.

Section 1247 instructs the National Security Council to develop a Black Sea security and development strategy across government agencies. But until that strategy is released, Section 1247 outlines five ways the United States will aim to support the region: “(1) to increase coordination with [NATO] and the [European Union (EU)]; (2) to deepen economic ties; (3) to strengthen energy security; (4) to support efforts to bolster their democratic resilience; and (5) to enhance security assistance with regional partners in accordance with the values and interests of the United States.”

These aims will require a whole-of-government approach in addition to participation from the private sector, for example through private investment in projects across Black Sea regional partners—which the NDAA lists as Bulgaria, Georgia, Moldova, Romania, Turkey, and Ukraine.

Some initial assessments can be made about the United States’ five aims.

US coordination with NATO and the EU

The Black Sea region’s most pressing concern is Ukraine, which is struggling to fend off Russia. Though Ukraine has already received considerable military and economic support from the West, this aid will continue in the form of the EU’s recently approved fifty-billion-euro package. The US Congress is still in gridlock over additional aid. Ultimately, Ukraine’s role as a bulwark against Russian aggression is too important for Washington and Brussels to ignore.

Over the long term, there is a need for greater military capability and interoperability, as well as a more resilient civil-military infrastructure, across the Black Sea region. While all the littoral states would benefit from a greater US presence, two nations will be particularly important for achieving the United States’ coordination goals. Turkey is not only home to the second-largest military in NATO; it is also the guardian of the straits that connect the Black Sea to the Mediterranean Sea (and beyond), so any US strategy must include Ankara. Therefore, rapprochement between Ankara, Washington, and Brussels will be necessary. Romania’s size, strategic location, and strong transatlantic ties have positioned it to become a military and economic hub for the region, particularly as more NATO assets are deployed there.

Deepening economic ties

Section 1247 calls for enhancing US business ties with Black Sea regional partners in part to reduce the impact of Russian and Chinese “economic coercion.” It is here where the various chambers of commerce—as well as the US Agency for International Development (USAID) and other US government development organs—can contribute by coordinating with stakeholders, lending institutions, and entrepreneurs.

Corruption and entrenched bureaucracies prevalent in the region inhibit growth and investment and undermine public confidence in national institutions. There have been improvements, though. Hopefully, increased attention from Washington will provide the impetus for the regional states to implement and enforce additional serious anticorruption measures.

Strengthening energy security

There is a need to strengthen the wider Black Sea region’s energy security by enhancing source diversification and reducing or eliminating dependence on Russia. Due to their geographical location and historical ties with Russia, most countries in the region are dependent on Russia for oil and gas imports. With the price cap placed on Russian oil—designed to reduce money flows to Moscow—these countries have worked on reducing their dependences. However, because of waivers, lax controls, or illegal trading activities, money from around the world still flows into the Kremlin’s coffers.

Moldova’s efforts to wean itself from Russian energy have had some success, with notable Romanian support. Ankara has worked to diversify its energy sources—although Turkey is proceeding with an agreement it signed with Russia that allows Russian state nuclear energy company Rosatom to build, own, and operate a nuclear power plant in Akkuyu, drawing criticism from experts in the West. Moreover, Russian energy still flows into Turkey. For example, Turkey has become the second-largest importer of Russian fossil fuels.

Finally, NATO’s lack of pipeline infrastructure in Eastern Europe is a potential vulnerability, meaning that it may not be able to rapidly move fuel to forward-deployed forces in the Black Sea region. Addressing that vulnerability will require a major effort that includes increasing oil and gas production by Black Sea states, exploiting renewable energy sources, and expanding the distribution network through expanded pipeline, road, rail, and barge infrastructure. This will be expensive, controversial, and time consuming, requiring funding, strong diplomacy, and patience.

Bolstering democratic resilience

Russia’s relentless malign influence campaigns are difficult to counter for small states without the vast resources to do so. A comprehensive, multinational response is needed to blunt Russian propaganda and disinformation in the Black Sea region. The NDAA advocates for an increase in independent media and US-supported media initiatives in the region, in addition to initiatives led by the State Department and USAID, to “combat foreign malign influence in the region.” This also presents the opportunity to leverage US-owned news network Voice of America and US-supported media organization Radio Free Europe/Radio Liberty. The United States could look to incorporate other resources, such as NATO’s strategic communications arm—including its Strategic Communications Centre of Excellence based in Riga, Latvia.

Enhancing security assistance with regional partners

The longstanding mistrust between the littoral states creates an indispensable role for the United States. Indeed, the United States has encouraged collaboration on Black Sea security among the region’s states. Such collaboration is on the rise, most recently seen in January when Turkey, Bulgaria, and Romania agreed to conduct demining operations in the Black Sea once Russia’s war in Ukraine comes to an end. Georgia is positioning itself as a key player in the middle corridor—promoting itself as a trusted partner in Eastern Europe’s trade system—by improving its port facilities and ancillary infrastructure. Georgia is also the proposed source for a potential undersea power and internet cable to Romania. Additionally, the strategy calls for assessments on “sustainable, long-term” food-security solutions. Cooperation between Ukraine and the countries along its Black Sea shipping corridor (Romania, Bulgaria, and Turkey) has allowed shipping, including millions of tons of agricultural goods such as grain, to continue along the Black Sea’s western coast within each state’s territorial waters. The United States’ aim to enhance security assistance with these regional partners is an opportunity for Washington to solidify its role as a trusted third party in such cooperation.

Section 1247 of the NDAA appears to be the beginning of an effort to bring stability to the United States’ traditionally unpredictable and uneven commitment to lend focus to the Black Sea region. However, Russia will continue to present a threat to the region. Thus, the United States must solidify its plans for engagement in order to change Russia’s perception of the political and economic costs of its activities and, ultimately, to deter the Kremlin.

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Webster quoted in The Wire China on state of global hydrogen industry

nsinha — Sun, 10 Mar 2024 14:15:34 +0000

ORIGINAL SOURCE

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Webster quoted in VOA Chinese on the mobile intelligence concerns of electric vehicles

smeadows — Thu, 07 Mar 2024 16:23:01 +0000

Senior Fellow, Scowcroft Strategy Initiative

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Cleveland, Ohio: Promoting a local and just energy transition

Peter Engelke, Joseph Webster, Maia Sparkman — Tue, 05 Mar 2024 23:20:40 +0000

Introduction
Cleveland: Basics
Decarbonization: State and local
Cleveland: Decarbonization pillars
Conclusion and recommendations
Authors
Acknowledgments

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Introduction

Cities and states are at the forefront of US efforts to achieve decarbonization goals, manufacture low-carbon technologies, and identify opportunities to align the energy transition with economic opportunities for businesses and workers. These subnational strategies align with ambitious nationwide objectives, including reducing US greenhouse gas emissions 50–52 percent below 2005 levels by 2030, achieving 100-percent carbon pollution-free electricity by 2035, and attaining a net-zero emissions economy by 2050. Achieving these targets will require cities and states across the United States to adopt decarbonization technologies, policies, and strategies. The leadership of state, local, and tribal leaders in climate action is pivotal for ensuring the long-term and sustainable decarbonization of the US economy.

Cleveland, Ohio, a mid-sized lakefront city with a rich manufacturing history, was once the fifth-largest city in the United States. However, as was the case with many Midwestern cities, Cleveland’s deindustrialization led to its economic decline. Yet Cleveland has an opportunity to establish itself as a leader in low-carbon and equitable growth. The city is pioneering valuable lessons learned and best practices to share with other cities facing similarly challenging conditions. It provides an example of how cities can leverage the benefits of the low-carbon transition to address climate change while providing public health, social, and economic opportunities for everyday Clevelanders—and to use this transition as an opportunity to reestablish itself as an industrial powerhouse in a low-carbon economy.

Cleveland is building toward a decarbonization agenda that envisions a city and region that are more equitable, sustainable, and livable. Yet while there are important voices advocating for an environmentally and socially sustainable future, it has proven challenging to build the critical mass of support required for structural, long-term change in Cleveland. Progress toward a comprehensive decarbonization vision, therefore, has been uneven in both the city and the surrounding region, including Cuyahoga County.

Nonetheless, key stakeholders continue to press forward to ensure that the Cleveland region will have a decarbonized future for all its citizens. For that to occur, the city’s public, private, philanthropic, and civil-society leaders will have to build upon their existing efforts, expanding and deepening the coalition of groups and interests that want to transform Cleveland’s economy in a decarbonized direction.

Following his election in 2021, Cleveland’s mayor, Justin Bibb, reaffirmed his predecessor’s commitment to sustainability and climate action. He announced a goal to transition Cleveland to 100-percent renewable energy by 2030, funded an initiative focusing on the circular economy, and stressed environmental justice as a core priority of his administration, among other actions. The city launched its Climate Action Plan in 2013, and updated the plan in 2018 to provide a framework for the city’s approach to tackle climate change across five focus areas: energy efficiency, clean energy, sustainable transportation, food systems, and clean water and vibrant green space. The plan also addressed cross-cutting priorities across the focus areas of social and racial equity, good jobs, climate resilience, and business leadership. The city is currently working on updating the 2018 iteration and expects to release an updated version in 2024. Members of the Greater Cleveland Partnership, the city’s Chamber of Commerce, for example, have begun to monitor their scope-one and scope-two emissions due to increasing customer demand for sustainability. And a steering committee, consisting of representatives from leading organizations in the region, has been formed to support an update to the city’s essential targets and goals—and, ultimately, to advance a unified vision for the city.

Cleveland: Basics

The Cleveland-Elyria Metropolitan Statistical Area (MSA), defined as the core city of Cleveland plus the surrounding Cuyahoga, Geauga, Lake, Lorain, and Medina Counties, had a population of 2.1 million people in 2020. The once-thriving city of Cleveland has experienced substantial population decline, from nearly one million residents in 1950 to 364,000 in 2022. The city’s population loss was the surrounding Cuyahoga County’s gain (Cuyahoga is by far the largest county among the five in the MSA), although it too has declined in population, from around 1.7 million in 1970 to 1.24 million people in 2022. The core city’s population decline stemmed from several forces that were common to US cities in the postwar era, including net out-migration, underinvestment in public infrastructure, and a shifting economic base, especially industrial-plant closures. Many of these demographic shifts resulted from the long-term decline, starting in the 1960s, of Cleveland’s industrial and manufacturing bases, which continue to be the backbone of Cleveland’s economy.

Such changes also landed unequally on Cleveland’s population. As just one of many possible examples, the construction of highways through Cleveland starting in the 1950s split the city unevenly, and to the detriment of poorer minority communities. Today, the legacy of Cleveland’s unequal economic geography remains, in particular for the city’s Black population, which remains concentrated in neighborhoods characterized by lower incomes, employment, and educational attainment. Within the city of Cleveland, 31.4 percent of residents live below the poverty line.

Decarbonization: State and local

With respect to greenhouse gas (GHG) emissions, the city of Cleveland has made some progress in mitigating its climate impact. Cleveland’s GHG emissions stood at 11.65 million tons in 2018, down 7 percent from 2010 levels, with an 11-percent improvement in emissions per dollar of gross domestic product (GDP). Cleveland’s GHG reductions occurred as regional eGrid emissions fell on coal-to-gas switching, as well as the increased adoption of clean energy. At the state level, Ohio’s use of coal in the electricity sector halved to 59 terawatt hours (TWh) over the same time period, while its natural gas usage rose 545 percent to 46 TWh to 2018; generation from clean energy sources, such as nuclear energy and wind, also rose sharply from 2010 to 2018. As is true of other US cities, greenhouse gas emissions in the greater Cleveland region are lowest toward the city center and highest toward the region’s periphery, owing to the roles played by population density, mixture of uses, commute lengths, and housing sizes.

While at the city level, Cleveland has notched key gains toward decarbonization, it faces state-level headwinds. Policymakers in Ohio’s state government appear willing to tilt energy markets toward fossil fuels. State officials have implemented restrictive legislation concerning the transition to renewable power sources, instituting onerous property-setback requirements for wind turbines and making approval processes for wind and solar projects much more difficult. As a result, Ohio’s electricity grid fuel mix will constrain Cleveland’s decarbonization ambitions. Ohio’s electricity generation is dominated by coal and natural gas, with clean energy sources such as nuclear, wind, and solar accounting for a very low proportion of overall output. In 2022, Ohio garnered only 15.4 percent of all electricity generation from nuclear, wind, or solar sources, versus nearly 51 percent for natural gas and nearly 32 percent for coal. Because clean electricity accounts for only a small fraction of Ohio’s total generation, there will be fewer decarbonization benefits to Cleveland from the electrification of vehicles or heating of buildings.

At the same time, there are countervailing forces at work within the state. The Inflation Reduction Act (IRA) of August 2022 has already generated new investments totaling $8.03 billion and more than five thousand good-paying clean energy jobs in Ohio, per research from the nongovernmental organization Climate Power, suggesting the clean energy transition’s economic potential there. Reflective of Ohio’s industrial history, Honda, LG Energy, and EdgeEnergy have invested in the electric vehicle economy and First Solar and Invenergy have invested in solar manufacturing. Federal support also aims to reduce energy bills through the Home Energy Rebate program and energy-efficiency grants.

While investment outcomes are typically tracked at the state level, local organizations in Cleveland are attempting to catalyze clean energy investments into the city. The GO Green Energy Fund, headquartered in Cleveland, is not only the nation’s first Black-led green bank program, it is also leading an initiative to secure $250 million in funding from IRA to support residential solar uptake for low-income residents across twenty counties, including Cuyahoga. In addition to solar, the fund is also examining other clean energy technologies, such as appliances and weatherization. With state policymakers evincing little interest in advancing decarbonization, local groups are aggressively pursuing federal funding from the Environmental Protection Agency (EPA).

Cleveland: Decarbonization pillars

Despite the constraints at the state level on decarbonization parameters, Cleveland and other local jurisdictions are setting forth strategies to reduce carbon emissions where possible. Cleveland’s efforts can be summarized with four key pillars: environmental justice; industry and manufacturing; transportation; and conservation. The pillars are generally aligned with the cross-cutting focus areas outlined in the city’s 2018 version of the Climate Action Plan (these include environmental justice, the green economy including business leadership, climate resilience, clean energy and efficient buildings, transportation, land and water conservation, and food security).

The map depicts cumulative environmental justice burden index scores for each block group in Cuyahoga County, using data from the US EPA’s EJSCREEN Environmental Justice Mapping and Screening Tool, combining environmental and demographic socioeconomic indicators. The areas in red experience the highest environmental justice burden and green experiencing the lowest burden. The highest environmental justice burdens are experienced in neighborhoods located in or near former industrial facilities or interstates. Source: ArcGIS

Environmental justice

As occurred in other US cities, Cleveland’s economic development historically disadvantaged poor and minority communities. East Cleveland, a suburb, was redlined on racial grounds and now has the lowest median income in Ohio, a 50.3-percent child-poverty rate, and 40 percent of its Black population living in poverty. The city’s decarbonization strategy includes a commitment to ensure that decarbonization efforts are equitable. For example, Mayor Bibb announced a $15-million investment for three disadvantaged neighborhoods to actualize the concept of a walkable or bikeable “fifteen-minute city,” and intends to allocate $50 million from the American Rescue Plan Act (ARPA) funding to prepare a thousand acres of vacant land to attract development and revive well-paying jobs in the city.

The historical legacy of discriminatory practices has cast a long shadow over Cleveland, amplifying the adverse impacts of economic and environmental outcomes such as high energy costs. Electricity and gas bills in Cleveland consume 6.6 percent of the average household income, nearly double the national average of 3.6 percent. Within the region, there are efforts to provide relief while pursuing decarbonization. The city of Cleveland, for example, is implementing a pilot program to install solar panels on the homes of low- and moderate-income families. Such efforts overlap with those by co-ops such as the Solar United Neighbors, Cuyahoga County Solar Cooperative, and Cleveland Solar Cooperative, which also develop solar assets in low- to medium-income neighborhoods.

Industry and manufacturing

Industry and manufacturing played a pivotal role in both Cleveland’s growth and its decline, but also should play an important role in the city’s rejuvenation efforts. Industry and manufacturing are Cleveland’s largest electricity consumers, using about 60 percent of the city’s total electricity. Energy efficiency is a central pillar of Cleveland Cliffs’ environmental strategy (the company, which is headquartered in Cleveland, is the largest flat-rolled steelmaker in the United States). Its Cleveland Works plant produces hot-rolled, cold-rolled, and hot-dip galvanized sheet and semi-finished slabs, and has the capacity to manufacture more than three million tons of raw steel annually using its two blast furnaces. Working closely with the Department of Energy’s Better Plants program, Cleveland Cliffs is committed to achieving a 10-percent reduction in energy intensity over ten years and announced a target to purchase two million MWh annually of renewable power.

Transportation

The transition to electric vehicles (EVs) is a vital step in reducing the city’s emissions, but its effectiveness in achieving decarbonization goals relies on the electricity grid. The absence of signals from the state pertaining to grid decarbonization fosters hesitation regarding investments in, and adoption of, decarbonization technologies like EVs. Cleveland’s EV adoption remains limited, accounting for merely 2.2 percent of new vehicle registrations in the Cleveland-Akron metro area, in contrast to comparable cities such as Columbus (3.7 percent), Detroit (4 percent), and Indianapolis (3.1 percent). The slow growth of EVs can be attributed partly to the lack of state-level EV tax incentives in Ohio, a contrast with other states such as Washington, Oregon, and California that are offering substantial incentives, leading to higher levels of EV registration rates in cities such as Seattle (17.2 percent), Portland (13.1 percent), and San Francisco (32.9 percent).

EV-charging infrastructure in Cleveland remains underdeveloped, although the mayor’s office has initiated the installation of its first free EV-charging station in the Lee-Harvard neighborhood, with plans for multiple additional installations throughout the city. The Greater Cleveland Regional Transit Authority’s 2020–2030 strategic plans include measures to introduce electric-powered buses, integrate alternative power at stations, provide EV charging at its facilities, and support multimodal connections to its transit systems. At the state level, there are plans to install EV-charging infrastructure across a corridor of 1,870 miles, facilitating a more comprehensive charging network across the region. Additionally, the Northeast Ohio Areawide Coordinating Agency (NOACA) has identified forty-seven locations for charging stations, spanning five counties in the region.

The city of Cleveland’s Mobility Plan demonstrates a proactive approach toward improving the city’s bike and pedestrian infrastructure, a step toward realizing Mayor Bibb’s fifteen-minute city framework, which has the potential to reduce vehicular traffic and associated emissions. This plan is multifaceted, aiming to bolster transit-oriented development, inject investment into Cleveland’s neighborhoods, and encourage multimodal transportation options. Currently, the city’s bicycle lanes are disjointed, catering to pockets of the city. Bike Cleveland, a local nongovernmental organization (NGO), has identified twenty-seven miles of potential new or improved bike facilities to enhance biking connectivity and safety.

Conservation

The conservation of land resources is integral to any vision that seeks to improve Cleveland’s livability, local economy, and environmental sustainability, while contributing to climate adaptation and energy efficiency. Among other benefits, conserving land helps mitigate climate-change impacts, contributing to local air and water quality and reducing urban heat-island effects. As with so many other aspects of the Cleveland case study, its conservation story is a combination of a troubling history and promising future.

For many decades, Cleveland was known as the Forest City for the extent and diversity of its tree canopy. Trees provide shade, reducing the heat-island effect, and can thus lower energy demand and associated emissions for keeping buildings cool. Since the 1950s, the city of Cleveland has lost half its tree cover, now estimated at around 18 percent of what the Cleveland Tree Coalition estimates as a possible upper limit. The city continues to lose trees at the rate of seventy-five acres per year. Unsurprisingly, the lowest coverage levels are in the city’s poorest neighborhoods contributing to poor air quality and access to shade, a result of systematic underinvestment in the city’s tree canopy there. An Urban Forestry Commission has been reconstituted under the aegis of the city government. It has the express goal of reversing the loss of tree cover through identifying appropriate policy remedies and generating public and civil-society buy-in to reforestation of the city.

The city’s history shows that a concerted, collaborative effort can accomplish this major conservation and decarbonization goal. The Cuyahoga River, which flows through Cleveland, is an iconic example of the city’s ability to achieve such an ambitious aim. The river is known for the 1969 fire that helped spark the mass environmental movement across the United States. Over decades, the determined efforts of federal, state, and local officials—as well as industry, civil society, and the Cleveland-Cuyahoga County Port—have brought the Cuyahoga back from its near-dead status of half a century ago.

Conclusion and recommendations

For the city of Cleveland and the surrounding region to successfully decarbonize, leaders from the public, private, and philanthropic sectors, plus those from civil society, will need to sustain and strengthen the coalitions that are moving the region in this direction. There are many promising signs on this front, as shown by the growing efforts of the Climate Action Plan steering committee and efforts to update the 2018 version of the plan. The city has made progress toward ensuring a just transition to a clean energy community, promoting low-carbon industrial production, advocating for an increase in EV adoption and charging infrastructure, and conserving tree cover, but much more work is needed to realize its climate and decarbonization agenda. The city will need to overcome remaining challenges by continuing engagement with all stakeholders: at the household and business levels to promote wider adoption of low-carbon technologies such as heat pumps, EVs, and charging systems; with the city’s utility, Cleveland Public Power, to develop a clean-energy grid; and through recognition by industry and large firms that decarbonization strategies are a better way of doing business.

Despite the state of Ohio’s recalcitrant policies toward renewable energy, there is much opportunity for Cleveland in this domain. For example, the city and region have numerous synergies between onshore and offshore wind on the one hand and steelmaking on the other. Great Lakes offshore wind must overcome several hurdles, including permitting challenges, height restrictions on wind turbines, cost inflation, and more, yet the Cleveland region nonetheless has a unique opportunity to accelerate decarbonization and economic development by leveraging its existing industrial base for wind development.

Finally, an oft-repeated message in consultations with key stakeholders is that the city and region need to realize the opportunities and benefits of recent federal legislation like the Inflation Reduction Act, CHIPS Act, and Infrastructure Investment and Jobs Act, as seen by recent investments in other regions of Ohio. There is enormous public funding available for investment from these acts. Leaders will need to bring the right groups of stakeholders together to aggressively pursue federal incentives and funding.

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AUTHORS

Staff

Peter Engelke

Global Energy Center Scowcroft Center for Strategy and Security

Technology & Innovation Europe & Eurasia

Staff

Joseph Webster

Global Energy Center Indo-Pacific Security Initiative

Central Asia China

Former staff

Maia Sparkman

Former Associate Director, Climate Diplomacy

Africa Climate Change & Climate Action

ACKNOWLEDGMENTS

The Atlantic Council would like to thank the Natural Resources Defense Council for its support of this work.

The authors would like to thank the following local and state stakeholders who provided valuable insights that informed this report:

Deepa Vedavyas, director of resiliency and sustainability, NOPEC
Jennifer Lumpkin, manager of local partnerships, Cleveland, Alliances for Great Lakes
Joel Brammeier, president and CEO, Alliance for the Great Lakes
Emily Keller, manager of sustainability initiatives, Greater Cleveland Partnerships
Jacob Schwemlein, director for Drive Electric Ohio, Clean Fuels Ohio
Tim Cho, senior manager of federal grants and special projects, Clean Fuels Ohio
Hannah Ruscin, program manager, Clean Fuels Ohio
Eleanor Jersild, senior manager of compliance and operations, Clean Fuels Ohio
Paige Lampman, Professional Services Manager of Projects, Clean Fuels Ohio
Joe Flarida, Executive Director, Power a Clean Future Ohio
Jacob VanSickle, Executive Director, Bike Cleveland
SeMia Bray, Co-Director Black Environmental Leaders Association
Elena Stachew, Northeast Ohio Strategy Consultant, Power a Clean Future Ohio
Kirt Conrad, Chief Executive Director, Stark Area Regional Transit Authority
Sarah E. O’Keeffe, Director, Sustainability and Climate Justice, Mayor’s Office of Sustainability, City of Cleveland
Max Zandi, former young global professional, Atlantic Council Global Energy Center
Grant Goodrich, executive director, Great Lakes Energy Institute, CWRU

This report was written and published in accordance with the Atlantic Council policy on intellectual independence. The authors are solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions.

Toward harmonizing transatlantic hydrogen policies: Understanding the gaps

Joseph Webster and Pau Ruiz Guix — Mon, 04 Mar 2024 21:37:11 +0000

The United States and the European Union are taking different approaches to the development of clean hydrogen, a critical technology to decarbonize hard-to-abate sectors, from industry to maritime and aviation, among others. Divergent hydrogen policies can limit the emergence of the competitive, transatlantic marketplace necessary to accelerate the deployment of clean molecules and eventually facilitate regional and global trade. Consequently, US and EU policymakers must coordinate hydrogen rules to the maximum extent possible while ensuring that hydrogen uptake reduces carbon emissions. The following analysis identifies key distinctions between the transatlantic partners’ hydrogen strategies.

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Common pillars for clean hydrogen—with different rules

In December 2023, the United States published draft guidance on hydrogen standards, used to determine eligibility for tax credits under the Inflation Reduction Act (IRA). The guidance, called 45V, is built around what is termed the “the three pillars” of hydrogen: temporal matching, additionality, and deliverability. These three general requirements are also tacked in the EU Delegated Act, which defines renewable hydrogen for compliance with EU targets as renewable fuels of non-biological origin (RFNBOs). While in the US framework, tax credits go toward clean hydrogen that is produced using any clean electricity source, including nuclear energy, and in the EU, compliance with EU RFNBO targets requires that hydrogen be generated with renewables only, the three pillars can be generally understood as:

Temporal matching: These rules aim to ensure hydrogen is produced when clean electricity is available. This means that any amount of electricity used in hydrogen production must be matched with the same amount of zero-carbon electricity produced within a given time period. Shorter time intervals reduce electrolyzer capacity factors, increasing the levelized cost of hydrogen but achieving greater emissions reductions. Temporal matching periods are typically conducted on an hourly, daily, monthly, or annual basis.

Additionality/incrementality: Rules around this pillar aim to ensure hydrogen production goes hand in hand with new clean electricity generation capacity, making hydrogen producers add renewable electricity to the grid, rather than repurpose existing clean energy already on the grid.

Deliverability: This set of rules aims to ensure hydrogen is produced using clean electricity in the same region where that electricity is produced. There must be a direct physical interconnection between the clean energy source and the electrolyzers producing green hydrogen.

The chart below features a comparison between the EU and the US approaches to hydrogen across the three pillars, as well as other key areas of clean hydrogen policy. While US regulations are a proposed draft, the EU framework is considered final despite tweaks that may take place during its scheduled revision period in 2028.

Table 1. US and EU approaches to green hydrogen

While certain elements of the US rules might suggest they are stricter than the EU approach, this would be an oversimplification, as each contains elements that could be considered stricter—or looser—than the other in certain areas. While both approaches ultimately mandate hourly temporal correlation and strict additionality rules, the EU does not switch to hourly correlation until 2030—whereas the United States switches in 2028. Also, the EU allows for grandfathering of additionality, which is not permitted in the US proposed guidelines. Nonetheless, the draft US framework allows for the use of subsidized clean electricity for hydrogen production, takes a technology-neutral approach to clean electricity, and accepts energy attribute certificates to comply with hydrogen rules, diverging from the EU framework and allowing for greater flexibility for hydrogen producers. Importantly, differences in approach mean qualifying for the US 45V credit does not automatically qualify a facility as producing EU RFNBO-compliant renewable hydrogen.

Beyond these significant technical variations, US and EU strategies for developing clean hydrogen markets differ in their economic approach: the United States follows a supply-incentive model, while the EU is predominantly relying on a market-pull mechanism. The United States incentivizes production of hydrogen with uncapped tax credits that give lower or higher support depending on emissions thresholds but does not mandate clean molecule uptake. In this sense, it rewards greater wholesale emissions reductions without requiring it. In contrast, the EU employs a demand-side mechanism: regulation imposes the consumption of renewable hydrogen (i.e., 42 percent of hydrogen used in industry must be renewable by 2030), and strictly defines which hydrogen (RFNBOs) is available to meet legally binding targets. This mechanism prioritizes the use, rather than production, of hydrogen, and thus the decarbonization of end users. While the EU has put in place a Hydrogen Bank to support production, support is capped and auction based, whereas the United States’ effort is uncapped and direct. The Hydrogen Bank’s results are yet to be seen.

To maximize clean hydrogen’s potential to contribute to energy security and decarbonization, the EU and the United States will need to balance environmental, economic, and security concerns—and they must coordinate these efforts together. While the two markets have different resource endowments, legal regimes, and more, the EU and the United States should ensure the maximal harmonization and interoperability of hydrogen regulatory frameworks, as this will simplify investment and trade. The two sides should also plan carefully to ensure that their respective approaches to hydrogen development reduce carbon emissions. The next Trade and Technology Council in Belgium is an opportunity for both sides to learn from each other’s best practices and develop common approaches to hydrogen development.

Joseph Webster is a senior fellow at the Atlantic Council Global Energy Center.

Pau Ruiz Guix is Officer on Trade and International Relations at Hydrogen Europe.

This article reflects their own personal opinions.

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The post Toward harmonizing transatlantic hydrogen policies: Understanding the gaps appeared first on Atlantic Council.

Shaffer quoted in Nikkei Asia on Asian gas exports

smeadows — Sat, 02 Mar 2024 14:45:07 +0000

Read the full article here.

The post Shaffer quoted in Nikkei Asia on Asian gas exports appeared first on Atlantic Council.

China has become an electric vehicle export behemoth. How should the US and EU respond?

Joseph Webster — Thu, 29 Feb 2024 22:31:45 +0000

On Thursday, US President Joe Biden announced that he has directed the US Department of Commerce to conduct an investigation into the potential national security risks from imported Chinese vehicles. The announcement follows comments made by US Commerce Secretary Gina Raimondo at the Atlantic Council on January 30 about several specific concerns. Modern vehicles contain a multitude of sensors that could aid Chinese intelligence services in collecting data around sensitive US facilities, such as military installations. These sensors could also enable collection of other data, such as real-time economic and mobility data. “Do we want all that data going to Beijing?” Raimondo asked at the Atlantic Council.

Raimondo also emphasized the sheer number of electric vehicles that China is exporting. Indeed, China has become a battery electric vehicle (BEV) export behemoth. Europe has become the top destination for Chinese BEV exports, for now, and exports could continue to rise due to cost reductions and synergies with China’s shipbuilding complex. Responding to these dynamics could prove challenging for the United States and Europe, given the competing priorities of decarbonization, economic goals, and the mitigation of security risks.

Working with allies and partners, the United States should adopt a joint, balanced approach to Chinese BEV exports by following pragmatic interim guidance while comprehensively studying the security risks these vehicles could pose. These interim steps should include preventing Chinese-made electric vehicles with sensors from reaching locations sensitive to US and allied security, such as military installations, and restricting them altogether from Guam, Okinawa, and other places relevant to Taiwan and South China Sea-related contingencies. Such interim measures would help keep the United States and its allies secure while the risks that Chinese BEVs ultimately pose are determined.

Chinese BEV exports to Europe are surging

China’s overall BEV exports rose 70 percent in 2023, reaching $34.1 billion. The European Union (EU) is the largest recipient of Chinese BEV exports, accounting for nearly 40 percent of them. Other European countries (Albania, European Free Trade Association members, North Macedonia, Ukraine, and the United Kingdom) held a 15 percent share of Chinese shipments in the same year.

China’s growing BEV shipments to Europe have vastly increased its share of the European market. Chinese manufacturers’ share of the Western European new BEV passenger car market stood at 9.3 percent in the fourth quarter of 2023, an astonishing rise from 2019, when China’s share in the total European BEV market only reached 0.5 percent.

In the Western Hemisphere, China’s exports to Mexico are worth watching carefully, as the country often serves as a backdoor to the US market. Still, Chinese BEV exports to Mexico are minor, totaling only $257 million in 2023, less than Canada, which imported $1.6 bi l lion over the same period. In other words, there is greater risk of BEV trade “leakage” to the United States from Canada than Mexico—at least for now.

What about plug-in hybrids?

The above chart does not include China’s exports of plug-in hybrid electric vehicles (PHEVs), which use batteries to power an electric engine and fuel to power an internal combustion engine. In 2023, China’s exports of PHEVs totaled $4.3 billion, or around just one-eighth of BEV exports that year. Many Chinese plug-in hybrids in 2023 went to Brazil—and to Russia, via both direct and indirect trade. Kyrgyzstan’s reported imports of Chinese plug-in hybrids reached $651 million in 2023, or about 5 percent of its gross domestic product at current prices. While Kyrgyzstan is notionally the third-largest importer of Chinese-made PHEVs, it is a near certainty that some of these shipments were in fact destined for another country, as Central Asian countries, especially Kyrgyzstan, often serve as a waypoint for Chinese exports ultimately bound for Russia.

The United States is a significant purchaser of plug-in hybrids, but it’s not currently purchasing many Chinese-made models either directly or indirectly. Chinese PHEV exports to parties of the United States-Mexico-Canada (USMCA) trade agreement totaled only $132 million in 2023.

The Chinese electric vehicle tsunami hasn’t hit the US—yet

Indeed, Chinese-made electric vehicles haven’t played a sizable role in the US market, at least not yet. China directly shipped just $368 million in BEV exports to the United States in 2023. Conversely, the EU exported nearly $7.4 billion to the United States that year, according to official US trade data.

The United States doesn’t currently import Chinese BEVs at scale largely because it places a 27.5 percent tariff on Chinese-made cars, along with other restrictions. Still, this tariff may not ultimately prevent Chinese autos from reaching the United States.

Chinese BEVs are already significantly less expensive than Western autos. Chinese automaker BYD’s Seagull, for instance, sells for only twenty thousand dollars in Latin America, while China’s electric vehicle producers are currently engaged in a price war with one another. China’s electric vehicle producers are competitive due in part to genuinely impressive innovations; synergies with China’s industrial capacity, including its shipbuilding sector; and economies of scale. But massive subsidies from China’s national, provincial, and even local governments are also an important factor.

Furthermore, Chinese auto exports will soon no longer be constrained by insufficient transoceanic carrier ships. BYD, in tandem with CIMC Raffles of Yantai, launched China’s first car carrier built specifically for the purpose of exporting Chinese-made autos. Earlier this week, thousands of BYD vehicles were unloaded in Germany on the first of eight ships commissioned by the company. The state-run People’s Daily reported earlier this year that a single company, the Chinese shipping giant COSCO, has ordered twenty-four large vehicle carriers.

China’s shipbuilding sector and industrial capacity should not be underestimated: China’s civilian shipbuilding production stood at 49 percent of the global market share in the first eight months of 2023. Working together and reinforcing each other, Chinese electric vehicle producers and shipbuilders will enable the country to ship more autos abroad—including, potentially, to the United States.

Additionally, Chinese autos might make their way to the United States via investments in third countries, especially Mexico. Not only does Mexico border the United States, but it is also deeply integrated into USMCA supply chains. Case in point: General Motors, Ford, BMW, and Audi are all currently producing electric vehicles in Mexico. China’s BYD is reportedly scouting locations to build production facilities in Mexico, then export the vehicles across the border into the United States in order to avoid tariffs.

Barring a policy response, it is likely only a matter of time before China’s electric vehicles will be well positioned to enter the US market either directly via export or indirectly via re-exports from, or investment in, third countries such as Mexico.

Managing a flood of Chinese-made electric vehicles

Chinese exports pose dilemmas for policymakers on both sides of the Atlantic. Electric vehicles help accelerate decarbonization and may already be more economically competitive than traditional internal combustion engine vehicles. But leaving Western electric vehicle supply chains in the hands of a formidable rival poses obvious economic and strategic risks.

Chinese electric vehicle exports to Europe face increasing pushback on economic and security grounds. The European Commission, citing unfair subsidies, has launched an investigation into whether China’s BEV value chains receive subsidies that are illegal under global trade rules.

Washington, Brussels, and other capitals should engage in a comprehensive and thorough evaluation of the risks of Chinese BEVs to determine where Chinese-made automobiles do—or do not—pose risks. In the meantime, US and allied policymakers should take some interim measures to mitigate these risks.

For starters, Chinese BEVs with sensors should not be allowed near sensitive locations, as the video and imaging capabilities of these electric vehicles could enable real-time, on-the-ground surveillance. Consequently, Taiwan should continue to restrict inbound shipments of mainland Chinese-made electric vehicles, especially those with sensors. Chinese electric vehicles should also not be allowed in Guam and should be restricted around other US and allied military installations.

Chinese manufacturers and China’s foreign ministry may grouse about any restrictions on BEV exports. These objections can largely be dismissed, as the Chinese government has itself imposed restrictions on Teslas. Still, Chinese automakers will find it in their long-term self-interest for Western countries to determine the rules of the road. If Western countries can determine where Chinese BEVs do not pose risks, it would create greater certainty for trade and investment.

Chinese-made electric vehicles pose a thorny dilemma for Washington and Brussels, with complicated trade-offs. Policymakers do not have a lot of time, as Chinese exports appear set to rise sharply amid their domestic price war and a growing transoceanic car carrier fleet. While Washington, Brussels, and other capitals need to comprehensively examine the security risks of Chinese BEV imports, interim risk mitigation measures are appropriate until the totality of the costs and benefits are better understood.

Joseph Webster is a senior fellow in the Global Energy Center and the editor of the China-Russia Report. This article reflects his own personal opinion.

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Bauerle Danzman cited by VOA on new Executive Order restricting personal data transfer

amagazzino — Thu, 29 Feb 2024 18:12:18 +0000

The post Bauerle Danzman cited by VOA on new Executive Order restricting personal data transfer appeared first on Atlantic Council.

Farrand quoted in Al-Monitor on Algerian-German gas partnership

Atlantic Council — Wed, 28 Feb 2024 16:34:03 +0000

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Western Balkans must pursue more competitive energy sectors

Matthew Bryza — Mon, 26 Feb 2024 15:19:14 +0000

European Union (EU) officials are looking ahead to 2030 as a possible target for enlargement into the Western Balkans. In preparation, the leaders of these six aspirant countries (Kosovo, North Macedonia, Serbia, Bosnia and Herzegovina, Montenegro, and Albania) are gauging how strictly Brussels enforces it directives and regulations—with the energy sector particularly important given its significance to economic growth and social stability, and its impact on the climate. Neighboring Bulgaria provides a test case. Although an EU member now for fifteen years, Bulgaria still relies on coal to generate more than half of its electricity and its energy sector remains dominated by inefficient state-owned entities whose lack of transparency provides fertile ground for Russian meddling. Analogous problems also plague energy sectors across the Western Balkans. The European Commission should therefore set an example for EU aspirants in the Western Balkans by pressing Sofia to live up to its commitments to a competitive and efficient energy sector that advances the energy transition and is independent from Russia.

Western Balkan energy: Too little competition, too much coal, and too much Russia

Energy sectors across the Western Balkans are dominated by state enterprises whose non-transparency and mismanagement have hampered competition, enabled Russian meddling, and slowed investments in the energy transition.

Privatizations of electricity networks in Serbia in the mid-2000s and Montenegro in 2009, for example, were marred by allegations of undervaluing state assets to benefit politically connected investors and thereby defrauding state budgets. The European Commission, meanwhile, recently criticized a lack of transparency in access to North Macedonia’s natural-gas transit infrastructure, as well as the country’s illiquid gas market. And concerns about corruption, mismanagement, and environmental degradation regarding the Kalivac hydropower project in Albania have resulted in major delays and cost overruns, with the project ultimately scaled back significantly.

Russia exploits these energy-sector weaknesses for both economic and geopolitical gain. The 2007 Comprehensive Energy Agreement Between Serbia and the Russian Federation, for example, outsources much of Serbia’s energy security and fiscal control to Russia. Under this framework, Russia’s Gazprom Neft acquired 50 percent of shares in Serbia’s national oil company, Naftna Industrija Srbij (NIS), while Gazprom gained 6.15 percent, yielding a controlling stake of 56.15 percent for Russia’s majority state-owned Gazprom group. Moreover, this arrangement grants Gazprom control over NIS revenue payments to the Serbian government that account for approximately 25 percent of national budgetary revenues.

Serbia is also a key player in the Balkan Stream pipeline, an extension of the TurkStream pipeline that exclusively carries Russian gas under the Black Sea to Turkey, then across Bulgaria to Serbia and Hungary. Moscow has pursued this project, previously called South Stream, since 2007 to resist competition from Azerbaijani gas while bypassing Ukraine as a transit route into Southeast Europe.

Today, Balkan Stream reinforces the efforts of both Serbian President Aleksander Vucic and Hungarian President Viktor Orban to balance relations between the EU and Russia.

Meanwhile, governments across the Western Balkans have also failed to make concerted efforts on perhaps the quickest and most cost-effective way to reduce carbon emissions in their countries’ energy sectors: switching from coal to natural gas as a primary fuel for electricity generation.

Though also a fossil fuel, natural gas emits only one-half to one-third the amount of carbon dioxide when burned that coal does. Moreover, switching to natural gas is a cost-effective way to maintain sufficient electricity volumes to sustain economic growth, even as countries muster the massive investments required to transition fully to renewable energy.

Germany provides an illustrative case. For the past four decades, the German government has been a global leader in transitioning to renewable energy under its Energiewende program, through which it has invested hundreds of billions of euros in wind and solar-power technologies, electricity-grid upgrades, and other elements of the green-energy transition.

Germany chose affordability over sustainability, however, when the US “Shale Revolution” took off in 2008, as new horizontal-drilling and rock-fracturing technologies unlocked vast new quantities of natural gas. This large increase in supply caused the price per unit of energy of natural gas in the United States to drop beneath that of coal. As a result, many US electricity companies switched from coal to gas as a primary fuel. This freed up US coal for export, causing its price per unit of energy in Germany to fall below that of natural gas. Many German electricity producers therefore moved in the opposite direction of their US counterparts, shifting back to “dirty” coal. Germany consequently missed its targets under the 1997 Kyoto Protocol for reducing its greenhouse-gas emissions while the United States, which never ratified the protocol, met its Kyoto targets thanks to its increased use of natural gas rather than coal.

Despite Germany’s short-term reembrace of coal but long-standing pursuit of renewable energy, German industry still chooses to depend significantly on natural gas to cover approximately 27 percent of the country’s fuel demand, second only to oil and significantly more than renewables’ share of 16 percent.

Before its full-scale invasion of Ukraine in February 2022, Russia provided 70 percent of Germany’s natural-gas supply. When Russia subsequently slashed those supplies, Berlin did not double down on renewable energy. It instead replaced Russian gas supplies with liquid natural gas (LNG), largely from the United States, after executing an unprecedentedly quick investment program to develop four import terminals to re-gasify LNG and deliver it into Germany’s pipeline network.

Western Balkan countries, however, have so far not chosen to follow Germany’s lead in relying on natural gas as a key transition fuel to a renewable-energy future. As the table indicates, Kosovo, a potential EU candidate country, uses coal for 95 percent of its power generation—primarily lignite, which is locally plentiful but the dirtiest variety of the dirtiest primary fuel. In North Macedonia, coal is responsible for generating 75 percent of the country’s electricity, while the figure is 70 percent in Serbia and 63 percent in Bosnia.

Source: Bankwatch Network

Montenegro and Albania use less coal and more hydropower. Coal is responsible for 43 percent of electricity generation in Montenegro, hydropower provides 47 percent of its electricity, and wind and solar provide the remaining 11 percent. In Albania, hydropower generates 99 percent of the country’s electricity, but the supply is insufficient, which requires electricity purchases from neighboring countries, most of which are generated from coal.*

Many climate activists are pleased that none of the Western Balkan countries relies on natural gas to generate significant volumes of electricity, and they advocate for the EU to press these aspirant countries to jump directly from coal to renewables. This is precisely what Kosovo plans to do. It is difficult to understand, however, how Kosovo will be able to attract the massive investments necessary to generate sufficient volumes of renewable electricity quickly enough to alleviate serious electricity shortfalls and affordably enough to maintain political stability, especially with 40 percent of its population living below the poverty line.

The government of Serbia, in contrast, is planning to increase the role of natural gas in its economy. Serbia has been buying Russian natural gas for decades. It now plans to increase those purchases via the Balkan Stream pipeline. In addition, Bulgaria and Serbia are finalizing a separate gas interconnection that could theoretically provide non-Russian supplies, but in practice may deliver exclusively Russian gas—albeit disguised as “Turkish gas”—via a recent agreement between the state-owned natural gas monopolies of Turkey and Bulgaria.

At the same time, Belgrade is also planning to diversify its supplies of natural gas to try to reduce its dependence on Russia. Serbia thus hopes to purchase Azerbaijani gas via the EU-supported Southern Corridor.

The Southern Corridor consists of the South Caucasus Gas Pipeline across Azerbaijan and Georgia, which then connects with the Trans-Anatolia Pipeline (TANAP) across Turkey, which in turn feeds into the Trans-Adriatic Pipeline (TAP) across Greece and Albania and under the Adriatic Sea to Italy. The Interconnector Greece-Bulgaria (ICGB) will divert gas from TANAP at the Turkey-Greece border and deliver it into Bulgaria; from there it will soon be able to enter Serbia via a new Bulgaria-Serbia interconnection.

Albania is also weighing whether to introduce natural gas into its economy to expand electricity generation in a more cost-effective way than building new hydropower plants, which have sparked sharp environmentalist protests in the past, such as at the aforementioned Kalivac dam project. Thus, the government of Albania is considering whether to develop localized natural-gas grids in two cities, perhaps as precursors for a national natural-gas grid.

North Macedonia, Bosnia and Herzegovina, and Montenegro are also considering significant investments in natural-gas infrastructure. Moscow, however, is working to lock these countries and their neighbors into dependence on Russian natural gas, with Russia now developing seven natural gas power plants, in tandem with Chinese financing and technology, in North Macedonia, Bosnia and Herzegovina, Serbia, and Croatia.

Bulgaria: State monopolies and coal crowd out the private sector and gas

In contrast to plans by five of the six Western Balkan countries to adopt natural gas as a cost-effective way to sustain economic growth and reduce carbon emissions, Bulgaria has been moving in the opposite direction for the past thirty years. Natural-gas consumption has decreased from 7 billion cubic meters (BCM) in 1993 to approximately 3 BCM today. As a result, coal remains the primary fuel for generating 56 percent of Bulgaria’s electricity. In contrast, during the same period, natural-gas consumption increased in Greece from zero to 7 BCM, and in Turkey from 15 BCM to 70 BCM.

To make matters worse, Bulgaria’s electricity system remains so inefficient that 80 percent of the energy released by burning coal in power plants is lost before the electricity reaches customers. This creates a double blow to the EU’s greenhouse-gas reduction targets: excessive use of fuel in general, and over-reliance on the dirtiest fuel, coal.

Bulgaria, like Serbia, consequently consumes more than three times as much energy and emits three times as much carbon per unit of GDP as do the EU’s original member states, which have been consuming significant volumes of natural gas for decades. It is, therefore, no coincidence that the energy intensity of Bulgaria’s economy today is roughly equal to that of Germany and the Netherlands in the 1970s, when they first began to adopt natural gas. Rather than emulating the Netherlands and Germany in switching from coal to natural gas, however, the Bulgarian government continues to subsidize coal-fired electricity, perpetuating decades of non-transparent revenue streams acquired and distributed via state-owned energy monopolies.

Moreover, with the lowest per-capita GDP in the EU, Bulgaria’s energy investments must be affordable, which rules out the enormous capital investments required for a direct jump from coal to renewables. The most cost-effective—and therefore politically sustainable—way for Bulgaria to slash carbon emissions would be to encourage private investment in a shift from coal-fired electricity to natural gas.

Unfortunately, this is not happening. Instead, Bulgaria’s state-owned energy monopoly, Bulgaria Energy Holdings (BEH)—which includes natural-gas supplier Bulgargaz and transmission-system operator Bulgartransgaz—has been crowding out private companies that are eager to invest in Bulgaria’s natural-gas infrastructure.

In 2012, for example, BEH prevented private companies from using Bulgaria’s natural-gas transmission pipelines. The European Commission fined BEH 77 million euros for this anticompetitive behavior. BEH continues to fight that fine in court, while private companies struggle to carve out space to compete with the state monopoly.

Punished for doing the right thing

Bulgaria’s private natural-gas suppliers are under severe financial strain after obeying EU regulations to fill Bulgaria’s underground gas storage (UGS) to 80 percent capacity by November 2022 to ensure security of supply in case Russia cut off gas to the EU following its invasion of Ukraine. This required Bulgarian gas suppliers to buy natural gas last summer at all-time peak prices and inject it into Bulgaria’s natural-gas storage facility at Chiren. Once the winter heating season concluded, natural gas prices in Europe fell to a fraction of the price suppliers paid to fill Bulgaria’s UGS. Normally, Bulgaria’s gas suppliers would have purchased hedges to protect against such dramatic seasonal price shifts. In this instance, however, there appeared to be no reason to do so because the European Commission had directed member-state governments with gas in storage to take “all necessary measures” to protect gas suppliers against such financial losses, as per Regulation (EU) 2022/1032.

Unfortunately, as of February 2024, the Bulgarian government had not yet promulgated the compensation mechanism it promised in accordance with the EU regulation. Private buyers of the stored gas therefore face a brutal financial dilemma: either sell now at enormous losses or hang onto the gas until prices rise, denying them the revenues required to service their loans. Either way, private Bulgarian gas suppliers face a severe liquidity squeeze, which could bankrupt them. As a result, they would likely be unwilling and/or unable to make emergency gas purchases again for this coming winter in case of another supply crisis.

Sofia did, however, extend a highly concessional 400-million-euro loan to Bulgargaz to compensate for some of its unhedged losses. However, the government then rejected requests by the country’s private gas suppliers for an analogous loan. The government’s loan to Bulgargaz would therefore appear to be an example of illegal state aid and another example of the state crowding out private companies in Bulgaria’s energy sector. The European Commission, however, decided to permit the market-distorting example of state aid because of what it terms an “energy” crisis caused by Russia’s sharp curtailment of natural gas deliveries into the EU.

Bulgaria’s nexus among corrupt energy officials and Russia

BEH’s non-transparent and anti-competitive behavior also undercuts the EU’s geopolitical goal of reducing energy revenues on which Russia relies to finance its war against Ukraine.

Bulgaria is infamous for murky ties between its government officials and their Russian counterparts. One former Bulgarian minister of energy, Rumen Ovcharov, is sanctioned under the US Global Magnitsky Act for participating in corrupt deals with Russian natural-gas and nuclear-fuel suppliers, as are Aleksandar Nikolov and Ivan Genov, two former chief executive officers (CEOs) of Bulgaria’s Kozloduy nuclear-power plant.

Today, Russia’s enduring presence in Bulgaria’s energy sector is evident at the country’s most valuable industrial asset, the Neftochim oil refinery in Burgas, which is owned by Russia’s Lukoil. While Bulgaria’s current government may be planning to nationalize and then privatize the refinery via non-Russian investors, its predecessor caretaker government secured a derogation from the EU’s ban of Russian oil imports to feed the refinery until 2027.

Meanwhile, Russia’s role in Bulgaria’s natural-gas sector appears to be growing, thanks to a January 2023 confidential agreement between the state-owned natural-gas monopolies of Bulgaria and Turkey. That agreement, the terms of which were leaked to Bulgarian media and subsequently confirmed by the current Bulgarian government, define a thirteen-year contract that reserves the entire capacity of the gas interconnection between Turkey and Bulgaria for BOTAS and Bulgargaz, locking out all competitors. Moreover, the agreement obligates Bulgargaz to accept any gas from BOTAS without BOTAS having to disclose the origin of that gas, while obligating Bulgartransgaz to deliver that gas to any exit point from Bulgaria via the country’s transmission pipeline system.

These unusual contractual obligations by Bulgargaz and Bulgartransgaz are now reportedly under investigation by the European Commission as potential violations of EU competition rules. The commission is also exploring whether the contract provides a potential “backdoor” for Russian gas to enter the EU even after the EU’s 2027 cutoff date for ending all imports of gas and oil from Russia, a suspicion reinforced by Russian President Vladimir Putin’s proposal to establish what he termed “a Turkish hub for Russian natural gas” during his September 4 meeting with Turkish President Recep Tayyip Erdogan. Erdogan, in contrast, is pressing for a genuine natural-gas trading hub in Turkey, where supplies converge from multiple directions and prices are set by market forces.

Conclusion: Set the right example in Bulgaria for the EU’s enduring integrity

Analogous versions of these Bulgarian energy problems are prevalent across the Western Balkans. They are almost certain to persist as long as government-owned companies dominate these countries’ energy sectors. Although it will take years to eliminate these state-led market distortions, there are significant steps the European Commission can take now in Bulgaria to strengthen private-sector competition, reduce greenhouse-gas emissions, mitigate corruption, and thwart Russian meddling, thereby setting examples for the EU aspirants in the Western Balkans. The European Commission should therefore press the Bulgarian government to:

Encourage the Bulgarian government to end subsidies for coal-fired electricity and instead support increased use of natural gas as a transition fuel to renewable energy, while also creating an operating environment that is conducive to investments in natural gas infrastructure by non-Russian and non-Chinese parties;

penalize the Bulgarian government for illegal state aid that crowds out the private sector and reduces competition, such as the 400-million-euro loan to Bulgargaz;

enforce Regulation (EU) 2022/1032 by insisting that the Bulgarian government finalizes and implements its “necessary measure” to protect against significant financial losses incurred by suppliers that injected gas into storage ahead of the 2022–2023 winter heating season, as required by the European Commission;
and demand the same level of transparency regarding the origins of natural gas at entry points into the EU (such as at the Turkey-Bulgaria border) as the European Commission already requires inside the EU at interconnections between member states.

Taken together, these measures would set a powerful example for political and business leaders across the Western Balkans and stress that they must take seriously the EU’s rules pursuing more transparent, efficient, and competitive energy sectors within its member states, which are are driven by well-governed private companies that invest in the energy transition and are free from Russian influence. Absent such steps in Bulgaria, however, Brussels risks signaling to leaders across the Western Balkans that the reform commitments they make today to secure EU membership can be ignored tomorrow. Such disregard for EU requirements risks undermining the credibility, and eventually even the viability, of the European Union as the world’s premier rules-based organization.

Matthew Bryza was a nonresident senior fellow with the Atlantic Council’s Global Energy Center and the Atlantic Council IN TURKEY. Bryza was formerly the US Ambassador to Azerbaijan. Follow him on X (formerly known as Twitter) @BryzaMatthew.

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Goldwyn quoted in Bloomberg on Venezuelan oil

smeadows — Fri, 23 Feb 2024 18:29:04 +0000

The post Goldwyn quoted in Bloomberg on Venezuelan oil appeared first on Atlantic Council.

Webster quoted in VOA Chinese on China’s non-lethal support for Russia

smeadows — Fri, 23 Feb 2024 14:56:18 +0000

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The toll on Russia from its war in Ukraine, by the numbers

Atlantic Council experts — Fri, 23 Feb 2024 14:13:19 +0000

The numbers don’t lie. Two years after Russian President Vladimir Putin launched his full-scale invasion of Ukraine on February 24, 2022, the humanitarian and economic costs to Ukraine have been immense. But the war has also wreaked devastating self-inflicted wounds on Russia, including catastrophic casualty rates, growing economic isolation from the West, and the mass emigration of skilled workers. Below, our experts quantify the staggering human and economic toll that the invasion of Ukraine has cost Russia since the war began.

The autocratic regime of Vladimir Putin is doubling down on fear, a trend that has accelerated since Russia’s invasion of Ukraine two years ago. This dynamic was dramatically demonstrated by the suspicious death of opposition leader and anti-corruption activist Aleksei Navalny last week in a Russian prison. It is also borne out by the numbers. According to data from the human rights organization OVD-Info, which compiles statistics on political persecution in Russia, there are currently 892 criminal cases against anti-war dissidents, and a total of 19,855 people have been detained at anti-war protests. The OVD-Info data also show a sharp uptick in Russians being detained for political reasons since the invasion. Of the 3,626 people in Russia subject to politically motivated prosecutions since 2012, more than one third, a total of 1,305, have come in the past two years (728 in 2022, 521 in 2023, and 56 thus far in 2024). The Kremlin’s decision to double down on fear is in fact a function of its own fear. Political change in Russia tends to come when three factors are present: a divided elite, a disaffected public, and an absence of fear. The Putin regime appears determined to assure that for the foreseeable future, fear will not be in short supply.

—Brian Whitmore is a nonresident senior fellow at the Atlantic Council’s Eurasia Center, an assistant professor at the University of Texas-Arlington, and founder and host of “The Power Vertical” podcast.

Launching the full-scale invasion of Ukraine led Russia to lose a significant natural gas market share and revenues in Europe. In 2024, Russia’s projected loss stands between twenty-seven and thirty-four billion dollars (assuming a price of seven to nine dollars per one million British thermal units of Dutch TTF gas). For context, these figures track closely to Russia’s planned spending on education and health care in 2024, allocations that have dropped as funding was diverted toward Moscow’s brutal military campaign.

Ironically, Europe’s race to phase out coal while maintaining industrial competitiveness would have led to an increase in Russian gas exports to the continent had Putin chosen economic prosperity over bloody, unprovoked aggression. This increase would have occurred regardless of whether the Nord Stream 2 pipeline came online. Moscow would have been on course to ship more than 184 billion cubic meters (bcm) of gas to Europe in 2024, according to an assessment by Rystad Energy that will be featured in a forthcoming Atlantic Council Global Energy Center report. Instead, Russia sent around 72 bcm piped and liquefied natural gas in 2023—a number that’s expected to remain steady this year unless new limits or sanctions are put in place. These figures speak to the unprecedented pivot from Russian energy sources in Europe as well as the urgent need for Europe to fully decouple from Russian supply chains. Energy exports remain the main mechanism for Russia’s ability to finance two years of a full-fledged war in Ukraine, as almost a third of Russian revenues comes from the oil and gas sectors.

—Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

As of December 2023, 315,000 Russian troops have been killed or wounded in Ukraine, according to declassified intelligence shared with Congress. With a ground force of 360,000 prior to the invasion, Russia has expended almost 90 percent of its prewar troops, an unimaginable loss for a country that has claimed to be the world’s second-strongest military. Russia’s highly attritional tactics, which often include pushing troops forward to the point of inoperability before being rotated out, have also included the use of human wave attacks, in which Russia engages in offensive efforts around places such as Bakhmut and Avdiivka by throwing masses of poorly trained and poorly armed Russian soldiers onto entrenched Ukrainian positions.

To put these numbers in context, Russia’s losses in the recent four-month campaign for Avdiivka, according to figures provided by Ukraine’s military, were greater than the Soviet Union suffered in its decade-long war in Afghanistan.

Russia’s high casualty rates in this war have acutely set back its fifteen-year-long effort to modernize its ground forces as Russia has taken “extraordinary measures” to sustain its fighting capacities, including the recruitment of convicts and older civilians. As long as Ukraine stays in the fight, Russia is likely to have irrevocably lost its force quality for the duration of this war.

—Olivia Yanchik is a program assistant with the Atlantic Council’s Eurasia Center.

In 2022, 10 percent of the information technology (IT) workforce left Russia, along with more than one thousand Western firms. The IT sector is vital to the Russian economy, having driven nearly a third of the country’s growth since 2015. In the months following the invasion, Moscow offered lower income taxes and mortgage rates to IT workers to retain talent. Yet these measures failed to stop more than one hundred thousand of these young, highly-educated professionals from leaving the country. According to the Russian minister for digital development, the IT sector now faces a shortfall of over half a million workers.

The effects of a growing “brain drain” are compounded by the exit of Western tech firms such as IBM, Intel, Microsoft, and others. Prior to the invasion, the sector was heavily reliant on Western inputs from semiconductors to operating systems. With access to Western technology severely hindered by sanctions, few domestic alternatives exist, and Chinese technology has proven an imperfect and costly substitute. The sector is now deprived of access to global connectivity, research, scientific exchanges, and critical technology components, and in the long term is likely to fall behind other global powers such as the United States, China, and the European Union (EU).

—The Economic Statecraft Initiative within the GeoEconomics Center publishes leading-edge research and analysis on sanctions and the use of economic power to achieve foreign policy objectives and protect national security interests. This post is adapted from the Economic Statecraft Initiative’s Russia Sanctions Database.

As of today, 444 individuals are currently designated foreign agents and undesirable organizations. Russia has used its foreign agents law to designate these groups and entities “foreign agents” under legislation that allows it to punish individuals and target groups for allegedly receiving support from outside of Russia or operating under foreign “influence.” The undesirable organizations law also allows Russia to completely ban entities deemed “undesirable” for supposedly compromising Russia’s defense or security capabilities or “constitutional order.” A total of 535 groups and individuals have been designated under these laws and placed on foreign agent and undesirable organization registries since 2022, comprising a majority of the total 920 designated since 2013, some of which are no longer currently listed.

Since launching its full-scale invasion of Ukraine, the Russian government has expanded and applied these laws extensively to crack down on independent media, civil society organizations, and other entities and individuals perceived as threatening to the Kremlin’s grip on power and war effort. Liberal use of the purposefully vague language of these laws has given the Russian government nearly unfettered power to silence opposition, eliminating the space for free expression and limiting social, political, and humanitarian work in and with Russia. Consequently, these laws have taken a massive toll on civil society and deprived Russians of access to information—particularly damning as the Kremlin works to mask the realities of its brutal war in Ukraine under a veil of pro-Kremlin and pro-war propaganda narratives.

—Mercedes Sapuppo is a program assistant at the Atlantic Council’s Eurasia Center.

In the weekend following February 24, 2022, the Group of Seven (G7) nations decided to ban transactions servicing the Russian Central Bank (CBR). The measure—implemented by the entire EU and a handful of other like-minded partners—keeps this money out of Moscow’s reach. The assets have not been frozen. Indeed, uncertainty remains on where a minority of the funds are. Still, we now know much more than even the US government did on the first anniversary of the invasion, and it is now clear that the block is working.

To arrest the ruble’s depreciation, CBR Director Elvira Nabiullina was forced to implement capital controls, which she had always ruled out prior to Russia’s full-scale invasion. Had the G7’s ban not been in place, she could instead have used the reserves to intervene in currency markets. Breaking the taboo on capital controls will cost in the long term as foreign investors will always remember that they may struggle to transfer returns out of Russia.

Moscow has practically written the money off. Two G7 statements say the block will only be lifted if Russia retreats behind Ukraine’s 1991 borders and pays compensation for the damage it has wrought, so the money will not come under Russia’s control any time soon. While simply using the assets for Ukraine’s reconstruction remains unlikely for now, the European Council has recently agreed to transfer the interest income and the principal may also be used to help Ukraine borrow more cheaply.

—Charles Lichfield is the deputy director and C. Boyden Gray senior fellow, of the Atlantic Council’s GeoEconomics Center.

The Ukrainian Office of the General Prosecutor has 685 suspects in its main case of aggression, including ministers, deputies, military commanders, officials, heads of law enforcement agencies, and “instigators of war and propagandists of the Kremlin.” It has 125,698 registered crimes of aggression and war crimes, and as of November 14, had completed war crimes trials against 238 military personnel.

For the situation in Ukraine, the International Criminal Court (ICC)’s Office of the Prosecutor (OTP) has only two public suspects, both accused of war crimes. There are plenty of reasons for the disparity. The ICC is a court of last resort, operating on the principle of complementarity. It also is required to focus on the parties that “bear the greatest responsibility,” which is generally not a requirement and is often difficult to pursue within domestic courts given immunities.

The OTP is likely to release more arrest warrants in coming years while balancing other investigations. Meanwhile, the Ukrainian general prosecutor can continue to develop capacity, working with the OTP and allied countries to best divide responsibilities and hold fair and efficient proceedings. Jointly, the resulting arrest warrants will help ensure that Russian perpetrators either will be unable to travel freely or will face trial.

—Celeste Kmiotek is a staff lawyer for the Strategic Litigation Project at the Atlantic Council.

G7 coalition members imposed the oil price cap in December 2022 with the goal of minimizing Russia’s oil revenues. For the first few months of 2023, the price of Russian oil remained below the cap of sixty dollars per barrel, which was taken as a sign of this novel measure’s success. However, the policy came under scrutiny in September 2023 when the oil price exceeded eighty dollars per barrel.

The oil price cap has reduced revenues for Moscow, but enforcement challenges have undermined its effectiveness. To circumvent the price cap, Russia reduced reliance on G7 shipping services, and switched to the use of “shadow fleet” tankers. Shadow fleet tankers allow Moscow to charge higher fees for oil and manipulate vessels’ locations. The lack of information on beneficial (actual) owners of tankers and complex ownership structures of maritime companies have made it difficult to counter Russia’s circumvention efforts.

The US Treasury Department is addressing these enforcement challenges by building compliance capacity in the maritime industry and also sanctioning the price cap violation networks. On February 1, the Price Cap Coalition published the Oil Price Cap (OPC) Compliance and Enforcement Alert, which provides an overview of key OPC evasion methods and guidance on how to report suspected breaches across the Price Cap Coalition. One week later, the Treasury’s Office of Foreign Assets Control designated a network of four entities based in the United Arab Emirates and Liberia and one tanker registered in Liberia because of their involvement in the price cap violation scheme. The combination of capacity-building measures and targeted designations of the evasion network is likely to enhance the effectiveness of the price cap and further reduce Moscow’s oil revenues.

The Soviet Union, which Putin so often laments the collapse of, was a powerhouse in the Olympics. During its existence, more than 1,700 Soviet athletes won an Olympic medal in sports ranging from weightlifting to table tennis. Individual triumphs, such as Belarusian Olga Korbut in gymnastics in 1972, generated awe and admiration around the world—even in the anticommunist West. For the Soviets, the Olympics were a way to attract positive attention and accrue soft power.

In a little more than 150 days, 4,600 athletes will descend upon Paris for the 2024 Summer Olympics. According to the most recent count, just six Russian and five Belarusian passport holders will compete. By the opening ceremony, these numbers may rise somewhat if more athletes qualify, but none will compete under the Russian flag, and none will hear the Russian national anthem on the medal stand.

After Russia’s full-scale invasion of Ukraine, the International Olympic Committee (IOC) condemned the “senseless war.” Russians were banned from competing in the Olympics under their own flag, as were Belarusians for their country’s role as a staging ground for Russia’s invasion. In December 2023, the IOC announced that some qualifying Russian and Belarusian passport holders could still compete in Paris, but they must do so under the banner of Individual Neutral Athletes.

In his marathon end-of-year address, Putin whinged to his captive audience that the “very idea of Olympism has been tarnished.” He’ll just have to settle for watching the more than sixty Ukrainian athletes competing in Paris.

—John Cookson is the editor of the Atlantic Council’s New Atlanticist section.

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Escalating Middle East conflict means North America must bolster global energy security

Julia Nesheiwat — Wed, 21 Feb 2024 22:18:22 +0000

In recent weeks, attacks on ships in the Red Sea have significantly raised shipping costs and caused delays for traded goods, from hospital supplies to food and clothes. Though the global energy supply is so far uninterrupted, a broader conflict in the region would mean disruptive attacks on energy and transport infrastructure, whether through Iranian naval action or Iranian proxies. North America must prepare itself for a coming crisis in the global energy supply, particularly the United States—where President Biden recently announced his decision to pause the approval of new liquefied natural gas exports.

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Red Sea attacks continue to threaten shipping

In November 2023, Houthi rebels began attacking commercial ships in the Red Sea and surrounding waters. The Houthis, a Fiver Shiite political faction and the de facto government of western Yemen, are a US-designated terrorist group closely aligned with Iran. They are targeting commercial vessels as a way to oppose Israel’s war against Hamas. In response, the United States helped launch a multinational naval coalition to safeguard navigation in the Red Sea, and it has since struck Houthi military targets several times. However, this has not yet stopped Houthi attacks.

The Red Sea conflict has forced ships to reroute around the Cape of Good Hope. This has disrupted the trade of commodities, including oil and gas, by raising freight rates, increasing shipping times, and reducing the number of ships available. Despite these disruptions, key oil prices such as the Brent benchmark have not yet spiked. Natural gas prices also remain relatively low, as overall demand is still being mitigated by full European gas stocks, a relatively warm winter in some places, and a slowdown in the Chinese economy and other economies, such as Japan and Germany. According to Reuters, US gas exports have played a key role in maintaining global price stability, especially in Europe, but also in Asia.

However, if the disruption in the Red Sea continues unabated, it will invariably drive up global costs for oil and liquefied natural gas (LNG). Freight rates for oil and petroleum product tankers continue to climb—in some cases by nearly 500 percent since November. Additionally, transport times and costs have gone up for oil and LNG shipments from the Middle East to Europe and Asia.

The near future remains uncertain. A wider conflict in the Middle East capable of physically interrupting oil or gas supply is increasingly likely. Recent press reports claim a war between Hezbollah and Israel may be “inevitable,” which in turn would force Iran to act. Iran’s military could easily disrupt the key shipping routes, forcing many countries to seek out supplies shipped via alternative means, notably from North America.

Iran’s actions will be key to the energy outlook

How Iran would respond to all-out conflict between Hezbollah and Israel remains an open question, but historical trends give no reason for optimism.

Primarily, Iran’s past actions in the Gulf mean more frequent harassment of Western-linked tankers is almost guaranteed. This strategy may have already started. In January, Iranian forces seized a Greek tanker off the coast of Oman, though they claim the seizure was reprisal for US sanctions against Iranian oil. The Iranian military is also building up its capabilities. In December, the Revolutionary Guard announced the establishment of a new, volunteer naval force intended to carry out “deep sea missions.” Iran’s navy is building a drone carrier intended for “long-range strike[s].”

There are two obvious ways for Iran to militarily act: the Iranian navy attacks or seizes commercial ships; or Iran-aligned militias attack a major Gulf energy producer, such as Saudi Arabia. Iran has previously resorted to both tactics.

During the Iran-Iraq War of the 1980s, the Iranian armed forces sank and seized tankers leaving Iraqi ports. In 2019, Iranian-led Houthi forces used drones and missiles to damage an oil processing plant in Abqaiq, Saudi Arabia. In 2021, Houthi rebels carried out a similar attack against a Saudi oil terminal in Jazan. The Houthis also attacked energy facilities in the United Arab Emirates with drones.

Broader conflict would severely impact energy supplies

To what extent Iranian military action would cut off the flow of oil and gas is beyond the scope of this analysis. But the impact on the global economy would be swift, including for major economies like China, Japan, South Korea, Taiwan, and India, who all significantly rely on crude oil, refined products, and LNG from the Gulf states. Altogether, around 25 percent of crude cargoes and 20 percent of LNG cargoes pass through the Strait of Hormuz. The EU also relies on oil imports from the Gulf states although less so than Asian countries.

Any large disruption to the Gulf states would leave North America as the most reliable, significant supply of energy. The United States alone exported 91 million tons of LNG in 2023, ahead of Australia and Qatar, which both exported about 80 million tons. Crude oil exports averaged nearly 4 million barrels per day. By one estimate, up to 40 percent of US LNG exports are destination-flexible, meaning they could be easily redirected to buyers in case of a Middle East supply disruption.

North America must bolster global energy security
Every day, it becomes likelier that there will be an escalation of conflict in the Middle East, particularly between Hezbollah and Israel. Such a war and the ensuing Iranian response would jeopardize the global supply of oil and gas due to trade disruptions not only in the Gulf, but also via the drought-affected Panama Canal, which has seen a drop in trade since November 2023. Countries would be left scrambling and forced to turn to reliable production in the United States, Canada, and Mexico. Altogether, the future of the global energy market may soon depend on how North America chooses to respond. The World Bank has estimated that up to 8 percent of global crude supply would be interrupted in case of a conflict. Such an event would also raise the price of LNG and other commodities. Inaction would be easy, and perhaps even politically expedient, but would further strain supplies. Given the risks, it would be best to allow a full development of North American energy possibilities.

EnergySource

Meet the author

Fellow

Julia Nesheiwat

Distinguished Fellow

Arabic Climate Change & Climate Action

New Atlanticist Jan 25, 2024

Houthi attacks in the Red Sea hurt global trade and slow the energy transition

By William Tobin, Joseph Webster

Recent attacks on commercial shipping in the Red Sea are a reminder that a major disruption to freedom of navigation would hold many negative consequences.

Economy & Business Energy & Environment

New Atlanticist Dec 20, 2023

What’s behind the attacks on ships in the Red Sea

By Ellen Wald

Houthis have increased drone and missile attacks against commercial ships in the area, and companies are suspending routes through the Suez Canal.

Economy & Business Energy & Environment

Global Energy Agenda Feb 7, 2024

Energy security is global security

By Geoffrey R. Pyatt

The energy transition has been and will continue to be an important element in ensuring our long-term energy security. But for the energy transition to succeed, it must be just.

Energy & Environment Energy Transitions

Learn more about the Global Energy Center

Charles Hendry: Russia’s invasion of Ukraine forced the West to confront lessons unlearned

The post Escalating Middle East conflict means North America must bolster global energy security appeared first on Atlantic Council.

Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions

Atlantic Council experts — Wed, 21 Feb 2024 20:17:58 +0000

Russia’s full-scale invasion of Ukraine on February 24, 2022 has reverberated throughout the global energy landscape, significantly impacting both energy security and the ongoing transition towards sustainable energy sources. Swift action is needed to mitigate risks, strengthen resilience, and ensure that energy remains a driver of stability and prosperity in the face of geopolitical uncertainty. Our experts share their insights on the second anniversary of the war.

Click to jump to an expert analysis:

Ellen Wald: US LNG helped keep Europe’s lights on—future resilience isn’t guaranteed

Olga Khakova: Delays in aid to Ukraine could erase energy security wins from the last two years

Robert F. Ichord: Europe reduced Russian energy—but created a solar energy paradox

Joseph Webster: War dims Gazprom’s future as China doubles down on homegrown energy

Jennifer T. Gordon: Nuclear power remains a crucial pillar of global energy security and decarbonization

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Russia’s invasion of Ukraine forced the West to confront lessons unlearned

There’s a Winston Churchill quote for every occasion and as he (supposedly) said about energy: “Security comes from diversity and diversity alone.” That’s as true today as it was more than one hundred years ago. The harsh lesson from Russia’s illegal invasion of Ukraine was that Europe had allowed itself to be overly reliant on a single source of gas supply. The actions by European governments since then—and especially Germany—to end that reliance have been extraordinary, but the clear lesson is that we must never again allow such dependence.

The move in the last two years to bolster energy security had led to greater focus on indigenous sources of power and an accelerated commitment to low-carbon sources of generation. And for once, the answer to the questions of what is best for security, for climate, and for affordability is mostly the same —go low carbon. Our governments are rightly focused on how we can enhance our energy resilience, yet still meet our net-zero commitments.

In the longer term, we can also see where the next threat of over-dependence comes from. It is not healthy for the West to be so dependent on China for so much of the low-carbon supply chain—for example, around 90 percent of the lithium chemicals we need for electric vehicles comes from China. Such overreliance is not good for China either, so we need to act now to build up our own industries, to make sure that we have supply chain security. The United States is leading the way on this through the Inflation Reduction Act, and it is now for the EU and UK to respond accordingly.

–Charles Hendry is a distinguished fellow with the Atlantic Council Global Energy Center, a former member of the UK Parliament, and former UK minister of state for energy.

US LNG helped keep Europe’s lights on—future resilience isn’t guaranteed

The real story behind European energy security post-Russian invasion of Ukraine is the incredible growth of the US LNG industry. According to the US Energy Information Administration (EIA), the United States exported more liquefied natural gas (LNG) than any other country in the first half of 2023. US LNG exports to European countries in the first six months of 2023 more than doubled compared to pre-war exports in 2021. Without this incredible expansion, both in US LNG exports and in regasification terminals in Europe, the continent would not have been able to reduce Russian natural gas and oil, and maintain electricity and fuel supplies as it did.

The US energy industry’s role in ensuring European energy security cannot be stressed enough—no other LNG exporting country in the world was in the position to expand its exports as rapidly as the United States was when the Nord Stream pipeline was destroyed and sanctions against Russian energy were put into place. For this, among other reasons, the Biden administration’s decision to suspend authorizations for new LNG export terminals must be questioned. If the EU and the US do not foresee an end to the Russia-Ukraine war in the near future, how can Europe continue to secure sufficient natural gas to meet growing energy demands without more LNG from the United States?

Although sanctions against Russian crude oil and petroleum products caused temporary disruptions on the global oil trade, the market has responded in resourceful ways. Without European countries to purchase their crude oil, Russia expanded sales to China and opened a new market in India. According to data provided by TankerTrackers.com, India has become the second largest importer of Russian crude oil and the largest importer of Russian seaborne crude oil. In 2023, India imported an average of 1.7 million bpd of Russian crude oil, whereas prior to the invasion of Ukraine it imported next to none. Countries like India and Turkey have found new business opportunities importing Russia crude oil and refining it into petroleum products that European customers are eager to purchase. Russia has also developed its own shipping fleet and insurance network to work around the US-EU price cap policy that is designed to limit their oil revenue.

Two years later, it can be concluded that the energy sanctions and price cap policies are not hurting Russian revenue significantly enough to impact its ability to wage war in Ukraine. As US policymakers consider whether to continue aiding Ukraine, the efficacy of these sanctions and price cap policies should also be examined. At the same time, the resiliency of the global energy oil market to accommodate such major changes without incurring serious shortages should be applauded.

–Ellen R. Wald is a nonresident senior fellow at the Atlantic Council Global Energy Center and the president of Transversal Consulting.

Delays in aid to Ukraine could erase energy security wins from the last two years

For two years, Russia has carried out indiscriminate, exceptionally cruel attacks on Ukraine’s civilian energy infrastructure. Included in these attacks have been acts of ecocide, such as the destruction of the Kakhovka Dam. However, Ukraine’s energy system and the sector workforce have showcased unparallel resilience and innovation in withstanding Moscow’s aggression, with robust technical, financial, and capacity support from the allies.

Beyond Ukraine, the war also profoundly and rapidly reshaped energy throughout Europe. Europeans have optimized homegrown production and efficiency measures to reduce reliance on imports, built out additional interconnectors to secure alternative energy supplies, and spent billions to minimize economic hardships on businesses and households.

As the war drags on, the West must learn to see Ukraine not as a charity case—but as a symbiotic energy partner contributing to European energy security and decarbonization. Ukraine offers important lessons in repelling cyber security attacks, fixing destroyed energy infrastructure, operating energy markets under volatile conditions. It also has valuable expertise in oil and gas, renewables, and civil nuclear energy. Ukraine has integrated into the European electricity market in record time, houses a critical gas storage system that is currently utilized by European gas traders, and is taking bold steps on reform and regulatory changes necessary for EU integration. However, these advantages are at high risk. War and political uncertainties are keeping new large-scale investments away; human capital shortages are placing additional strains across all levels of Ukrainian systems; and the delay in aid from the United States is impacting the recovery and defense of Ukraine’s energy generation. Western support is needed more urgently now than ever to ensure that Ukrainians can continue defending European territories, democratic values, and energy security.

–Olga Khakova is the deputy director for European energy security at the Atlantic Council’s Global Energy Center.

Europe reduced Russian energy—but created a solar energy paradox

The war in Ukraine has spurred profound changes in Europe’s energy system and fostered concerted efforts like REPowerEU to improve energy security. Not only has it reoriented and reduced dramatically Europe’s gas supplies from Russia and cut gas consumption, but it has boosted Green Deal transition efforts to develop renewable and zero-carbon energy (including nuclear) and improve energy efficiency. It has motivated the forging of stronger energy links both among European countries and with the United States, which supplied about 50 percent of the EU’s LNG imports in 2023.

But in doing so, these overall efforts have created a paradox. The rapid growth in solar energy that is reported to be 40 per cent higher in 2023 than the 41 GW of solar added in 2022, has made the EU dependent on China for over 95 percent of its solar photovoltaic (PV) modules and threatens domestic EU manufacturers due to the much lower price of Chinese modules. Renewables constituted 23 percent of the EU primary energy consumption in 2022, of which solar was about 6 percent and was the fastest growing share providing 12 percent of EU electricity in the summer months. The EU Council has raised the binding target to 42.5 percent in 2030 with the ambition to achieve 45 percent. The EU Solar Strategy aims to increase solar PV capacity to 320 GW by 2025 and up to 600 GW by 2030, compared with 260 GW in 2023.

The EU and its member governments are debating various options to increase domestic solar PV production and limit imports from China. There is some consensus on setting a 40 percent non-binding self-sufficiency target but there are divergent interests between the domestic manufacturing companies and installers and assemblers of systems. Faced with a similar situation, the US placed high tariffs on Chinese modules, diversified suppliers and temporarily waived tariffs on imports from Southeast Asia and provided credits for solar PV manufacturing under the Inflation Reduction Act. Such an approach by Europe would be expensive for Europeans, who are already experiencing high costs of energy. In his February 12 speech to the European Parliament, EU Council President Charles Michel stressed the importance of energy affordability in efforts to improve EU energy security, noting that EU energy prices were 4.5 higher than its main competitors.

But there is a path for reducing dependence on China’s solar supply chain. The market is currently flooded with solar PV panels as Chinese manufacturers overproduced in 2023 and European companies imported more than they installed. Stockpiling panels, for example, could be part of a less expensive strategy for reducing vulnerability to market manipulation or politically inspired supply cutoffs. Although the energy security implications from this growing dependence on Chinese solar panels are quite different from Russia’s use of gas as a political weapon against Europe, current overall geopolitical and trade tensions with China suggest that China’s global market monopolization of this important energy technology requires serious consideration and coordination among Western allies.

–Robert F. Ichord, Jr., is a nonresident senior fellow with the Atlantic Council Global Energy Center.

War dims Gazprom’s future as China doubles down on homegrown energy

Russian gas giant Gazprom will never recover from Putin’s invasion of Ukraine. Gazprom’s exports to Europe stood at just 28 billion cubic meters (bcm) in 2023, down from 200 bcm in 2019, before the invasion and COVID. The Russian pipeline export monopolist is exceedingly unlikely to offset this loss of demand via other markets, including China, as its long-planned Russia-to-China Power of Siberia-2 pipeline has gained little traction since the invasion despite Gazprom’s desperation to clinch a deal. The reasons for the delay are manifold and include high interest rates, financing disagreements, elevated steel costs, and geographic realities.

Perhaps more importantly, Putin’s invasion and the resulting shock to global energy prices reinforced Beijing’s energy security anxieties. China is constructing massive amounts of renewables while also doubling down on coal plant construction (although throughput across its coal fleet will likely decline in future years). China added nearly 300 gigawatts of wind and solar capacity in 2023 and could very well replicate that pace—or even accelerate it—for another decade. Chinese deployment of clean electricity generators, paired with batteries, heat pumps, hydrogen (eventually)—and, incongruously, coal—is sharply reducing its need for Russian natural gas. In sum, while Putin may yet prevail in Ukraine, Gazprom’s exports will almost certainly never approach pre-war volumes.

–Joseph Webster is a senior fellow at the Atlantic Council’s Global Energy Center and editor of the China-Russia Report. This article represents his own personal opinion.

Nuclear power remains a crucial pillar of global energy security and decarbonization

From the earliest days of Russia’s brutal invasion of Ukraine in February 2022, nuclear energy has been a flashpoint in the war. Russia shelled and subsequently occupied the Zaporizhzhia Nuclear Power Plant, and a key part of the response from the US government and non-governmental organizations has focused on efforts to provide relief to Ukrainian nuclear power plant workers.

Even while under attack, Ukraine has recognized that the nuclear energy sector is a crucial part of its power sector, its ability to rebuild its industrial sector, and its long-term economic prosperity. Even with the loss of the Zaporizhzhia Nuclear Power Plant, roughly “55 percent of all electricity production in Ukraine is still from [nuclear reactor] units at Khmelnytskyi, Mykolaiv and Rivne.” Furthermore, Ukraine has ended imports of nuclear fuel from Russia and has relied on US-based Westinghouse Electric Company for its nuclear fuel needs. With an eye toward eventual reconstruction in Ukraine, US Special Presidential Envoy for Climate John Kerry and Ukraine’s Minister of Energy German Galushchenko announced in November 2022 “a two-to-three-year pilot project aimed at demonstrating the commercial-scale production of clean hydrogen and ammonia from small modular reactors in Ukraine using solid oxide electrolysis.”

Ukraine’s regional partners—especially Poland and Romania, which are deeply involved in Ukraine’s energy future—also understand the extent to which the nuclear energy industry must play a crucial role in Ukraine’s reconstruction. Romania is currently the only country in Central and Eastern Europe that is operating North American reactors, with its Canadian CANDU reactors having generated electricity since 1996. Romania also plans to build a first-of-a-kind small modular reactor, in partnership with the United States. Poland is dedicated to establishing a civil nuclear program, with plans for large lightwater reactors and small modular reactors.

Finally, Russia’s unprovoked war in Ukraine has had a major impact on the global nuclear energy industry. Problems that may have been papered over prior to February 2022 have been brought to the fore. For example, US and global dependence on Russian enrichment and conversion capabilities for nuclear fuel is finally being addressed as the US has started ramping up domestic capacity for enrichment and conversion. However, more remains to be done. As Russia continues to make inroads into emerging markets for nuclear energy technologies, the United States and its allies must redouble their efforts to outcompete Russia, in order to ensure that new-to-nuclear countries are able to uphold the highest standards of safety, security, and nonproliferation.

–Jennifer T. Gordon is director of the Atlantic Council Global Energy Center’s Nuclear Energy Policy Initiative.

EnergySource

European Energy Security Dec 7, 2023

Energy security as the foundation for Ukraine’s formula for peace

By German Galushchenko

Rebuilding Ukraine’s energy sector in line with the world’s best practices in sustainable development and decarbonization will help to finally break the grip of the fossil fuel dictatorship and strengthen the new energy model of the world.

Energy & Environment Energy Transitions

EnergySource Oct 11, 2023

A Ukrainian energy hub will help Europe’s clean transition

By Mark Temnycky

Ukraine can become an energy and minerals hub for European. Investing in Ukraine’s renewable energy industry is vital for European decarbonization.

Energy & Environment Energy Transitions

EnergySource Oct 16, 2023

Policy Memo: How to deepen transatlantic energy and climate cooperation at the US-EU summit

By George Frampton, Olga Khakova, Joseph Webster, Paddy Ryan, Maia Sparkman, William Tobin

Energy & Environment Energy Markets & Governance

Learn more about the Global Energy Center

The post Two years on, what the Russian invasion of Ukraine means for energy security and net-zero emissions appeared first on Atlantic Council.

Sullivan quoted in Voice of America on Houthi attacks in the Red Sea

smeadows — Wed, 21 Feb 2024 18:36:24 +0000

The post Sullivan quoted in Voice of America on Houthi attacks in the Red Sea appeared first on Atlantic Council.

Shaffer featured in Reuters on IEA’s clean energy initiatives

smeadows — Thu, 15 Feb 2024 14:55:10 +0000

The post Shaffer featured in Reuters on IEA’s clean energy initiatives appeared first on Atlantic Council.

Global Energy Agenda full survey results

Nancy Messieh — Thu, 15 Feb 2024 03:13:11 +0000

Global Energy Agenda full survey results

Survey questions

Demographic data

Global Energy Agenda

Nov 30, 2023

The 2024 Global Energy Agenda

By Landon Derentz, Christine Suh, Paul Kielstra (Editors)

The fourth edition of the Global Energy Agenda kicks off with a collection of essays by energy leaders that are rolling out during COP28. Rounding out the Agenda in early 2024, the Atlantic Council Global Energy Center will release the results of its annual survey of experts that takes the pulse on the geopolitical risks affecting energy markets, the future of fossil fuels, and the transition to clean energy.

Energy & Environment Geopolitics & Energy Security

The post Global Energy Agenda full survey results appeared first on Atlantic Council.

Webster in The Diplomat: China-Russia Energy Ties Feature in the Xi-Putin Lunar New Year Call

smeadows — Tue, 13 Feb 2024 15:19:48 +0000

The post Webster in The Diplomat: China-Russia Energy Ties Feature in the Xi-Putin Lunar New Year Call appeared first on Atlantic Council.

Global LNG markets are transforming. It’s an opportunity to enhance energy security.

David L. Goldwyn, Joseph Webster — Thu, 08 Feb 2024 10:55:00 +0000

Winter’s prominence in world natural gas markets is diminishing. Climate change and new energy technologies are moderating Europe’s demand in the winter months for energy and in particular for natural gas. This is good news for Europe’s energy security and a credit to the policies of the European Union (EU) and many national and local governments. But summer gas demand globally is also impacted by rising summer temperatures. Taken together, the impacts of these two trends on global liquefied natural gas (LNG) markets and prices could be consequential.

Climate change is generally raising winter temperatures in Europe, reducing seasonal heating and power needs. The deployment of energy efficiency improvements, two-way air conditioning units (commonly referred to as heat pumps), and renewables, such as offshore and onshore wind, are further decreasing European natural gas demand for winter heating and the power sector. While energy efficiency and heat pumps will pressure natural gas demand throughout the year, the EU’s buildout of winter-peaking wind capacity will have significant seasonal implications. Europe’s “flatter” winter peak demand will enhance European energy security by leaving it with more leverage vis-à-vis Moscow, which continues to pump and export billions of cubic meters of gas to the continent each year.

“Flatter” interseasonal variation in demand could impact more than just Europe: Other systemic implications for global LNG are likely. With both winter and summer temperatures generally rising across the Northern Hemisphere due to climate change, it is likely that winter LNG demand will decrease even as summer consumption needs rise, leading to less global interseasonal variations in peak demand. Furthermore, the “equatorialization” of LNG demand—that is, greater consumption of LNG in markets closer to the equator—will amplify cooling needs and summer periods of peak demand. This can have important implications for energy storage policies and aggregate demand. While further research and rigorous modeling of these trends are required before the extent of these shifts are known, countries around the world appear set to shift how they consume LNG.

Climate change is reducing winter gas demand

Natural gas demand peaks in the Northern Hemisphere in winter due to the distribution of the world’s population and the energy requirements needed to achieve comfortable temperatures. As temperatures decline across the Northern Hemisphere, end users burn more natural gas for heating, industrial use, and power than they do in other seasons. About 90 percent of the world’s population is located in the Northern Hemisphere, along with most of the world’s largest LNG importers in Europe and Asia. Due to these two factors, European—and world—natural gas consumption peaks in winter.

Heating degree days and cooling degree days are proxies used to measure energy needs by comparing the mean daily temperature from 65 degrees Fahrenheit. The Northern Hemisphere’s temperatures tend to show greatest variance from 65 degrees Fahrenheit during winter, especially in northern climates, such as Europe.

Peak winter natural gas demand in northern climes is already impacted by climate change and warmer temperatures. In the EU, the number of heating degree days fell by 19 percent from 1979 to 2022 (Japan saw a 14.5 percent decline in heating degree days from 2000 to 2020). In 2022, heating degree days were 12 percent below their prior-year levels, reducing residential and commercial natural gas demand by around 18 billion cubic meters (bcm), according to the International Energy Agency (IEA). Holding all else constant, rising temperatures have reduced Europe’s winter gas needs and will continue to do so.

Reducing demand

Europe’s winter natural gas demand will also increasingly be moderated by energy efficiency, heat pumps, and the adoption of renewables, especially wind. Building modernization and heat pumps will reduce natural gas heating demand, while renewables will reduce the amount of natural gas burned to generate power.

Electricity-driven heat pumps, which typically provide both heating and cooling needs, are already impacting natural gas consumption in Europe. A record three million heat pumps were sold in the EU in 2022, and one energy industry analyst offers a back-of-the-envelope estimate that every million heat pumps reduces natural gas demand by around 1 bcm per year (with substantial variation due to housing stock). Looking ahead, the IEA projects that heat pumps will account for 21 bcm by 2030 in demand reduction in its aggressive Announced Pledges Scenario, although it’s worth mentioning that heat pumps have faced political blowback in Germany and elsewhere due to concerns over costs, shortfalls of equipment and personnel, and budgetary mechanisms.

Energy efficiency, especially in buildings, may be an even more important factor than heat pumps in dampening Europe’s overall natural gas demand. The IEA’s Announced Pledges Scenario in November 2022 projected that the EU’s annual consumption of gas for heating in buildings would fall by about 42 bcm by 2030 due to factors other than heat pumps, with energy efficiency retrofits comprising the majority of the decline.

Europe has backed energy efficiency talk with serious investment, as the EU’s Renovation Wave aims to decarbonize thirty-five million buildings by 2030, at a total cost of 2.75 trillion euros. The data show why this level of investment may be appealing to policymakers: Buildings account for 40 percent of the EU’s final energy consumption, along with 36 percent of energy-related greenhouse gas emissions. Moreover, improving the energy efficiency of the worst-performing buildings can deliver massive benefits: electricity consumption in Danish homes is up to thirty times lower in homes with the highest efficiency rating compared with the lowest efficiency rating, according to the IEA.

Europe has also taken steps to decarbonize new buildings. As part of its Fit for 55 package, the EU reached a provisional political agreement in December 2023 over the energy performance of new buildings. The agreement states that the minimum energy performance standards by 2030 in all nonresidential buildings will be above the 16 percent worst-performing and by 2033 will be above the 26 percent worst-performing. While the agreement is not finalized, there is substantial evidence that the Europeans will continue to vigorously pursue energy efficiency measures, including via creative public-private partnerships.

Displacing demand

Gas used in the power sector accounts for about 30 percent of Europe’s gas demand. While energy efficiency retrofits and heat pumps will reduce overall natural gas demand throughout the year, renewables generation will lower Europe’s peak winter demand for natural gas, especially for power generation, all else being equal. Onshore and offshore wind in particular could weaken demand for natural gas in winter, since winter months, when winds are often strongest, tend to produce more wind power.

Displacement of natural gas in the winter power mix will largely depend on the speed of offshore and onshore wind deployment, as well as nuclear energy generation. The EU aims to increase installed wind capacity to 500 gigawatts (GW) in 2030, up from 204 GW in 2022, although the global and European wind industry has faced challenges due to cost inflation spurred by supply chain issues and high interest rates.

Even if the EU is unable to meet its ambitious wind objectives, however, wind is already competing with natural gas during the winter. Indeed, wind’s share of all EU electricity generation from winter generation rose from 12 percent in the winter of 2015/2016 to 19 percent in the winter of 2022/2023, per our analysis of data from the think tank Ember. If wind’s share of winter power output rises from 2022/2023 levels to 26 percent by 2030—a modest goal, given that the EU seeks to more than double wind capacity by 2030—coal and natural gas will be impacted.

So far, winter demand for coal and nuclear energy—not natural gas—has primarily been displaced by the rise of European renewables. Coal, the most polluting hydrocarbon, is clearly on the way out due to policy measures and challenging economics. European nuclear energy generation has fallen to lows last seen in the mid-1980s and appears unlikely to rebound from its current lows until the 2030s at the earliest. Going forward, winter-peaking wind generation and, to a lesser degree, solar and batteries, will begin to compete with natural gas more vigorously in Europe’s winter electricity mix.

By 2030, the combination of higher temperatures, building modernization, heat pumps, and renewables generation could reduce Europe’s winter natural gas demand by dozens of bcm, all things being equal.

Implications for LNG markets and European energy security

What does this mean for global LNG demand? While the implications of reduced winter LNG demand in Europe over time remain uncertain, some potential outcomes are worth exploring. For example, if high-income Asian countries and equatorial buyers invest in storage for energy security reasons, then there could be a deeper and more flexible global LNG market, with more consumers able to manage supply disruptions and trade cargoes (as seen in the wake of Russia’s invasion of Ukraine). But geologic storage is costly and unavailable in many markets, and undesirable to construct in countries that see gas as a transition fuel.

It is therefore much more likely that there will be a significant increase in the demand for LNG transportation and storage infrastructure. Orders for new LNG tankers amount to half the number of tankers that currently exist. There should be a significant increase in demand for LNG tankers, both for shipping and as storage devices, as well as an increase in demand for floating storage and regasification units as countries opt for more flexible forms of gas storage (such as Floating Storage Regasification Units, or FSRUs). The impact of this change in demand on price will significantly depend on the adequacy of supply, including whether the United States sustains its role as a major incremental supplier of competitively priced fuel, and whether the manufacturers of LNG tankers and FSRUs can keep up with global demand.

Of course, the emergence of new LNG demand centers close to the equator will also raise summer demand for cooling needs. India, Pakistan, Bangladesh, and other equatorial markets are all examining LNG due to its usefulness as a baseload fuel source and its benefits for urban air quality. As these equatorial economies turn to LNG, world gas demand will increasingly shift from winter to summer.

Equatorial cooling needs will be significant. In 2019, India alone experienced more than 3,600 population-weighted cooling degree days (PWCDD), a measure of cooling needs. Further north, Spain and the United States required only 629 and 865 PWCDD, respectively, in the same year. Notably, hotter countries can see a rise in electricity demand of more than 50 percent in the summer. Additionally, demand within the northerly economies will also shift, as the number of cooling degree days in the EU nearly quadrupled from 1979 to 2022. Climate change and the equatorialization of global demand will lead to less winter heating needs and more cooling requirements.

Changing LNG markets are an opportunity

LNG markets are shifting gradually but perceptibly. More rigorous work needs to be done to model the shifting regional and temporal demand profile of global natural gas, rising global temperatures, and the equatorialization of natural gas. More research is needed, for example, to confirm if these changes will lead to more consistent, year-round consumption. With better information about these trend lines, manufacturers of tankers and FSRUs (as well as LNG suppliers) will have more accurate demand signals and policymakers can explore the opportunity for storage and trading policy to create less volatility in LNG markets. In addition, the impacts of these interseasonal variations on aggregate LNG demand must be modeled so that changes in European gas demand are not reflexively interpreted as the harbinger of reduced aggregate LNG demand.

The world is entering a new era for European and, potentially, global LNG markets. There is a great opportunity here for enhanced energy security—and climate security—not just in the Northern Hemisphere, but worldwide, especially if natural gas value chain emissions are mitigated. But this opportunity should not be missed.

David Goldwyn is president of Goldwyn Global Strategies, LLC, chairman of the Atlantic Council Global Energy Center’s Energy Advisory Group, and the former special envoy and coordinator for international energy affairs at the US State Department.

Joseph Webster is a senior fellow at the Atlantic Council and editor of the China-Russia Report.

The authors are grateful to Andrea Clabough, senior associate at Goldwyn Global Strategies, LLC, and nonresident fellow at the Global Energy Center for her contributions to this article.

This article reflects their own personal opinions.

The post Global LNG markets are transforming. It’s an opportunity to enhance energy security. appeared first on Atlantic Council.

Energy security is global security

Geoffrey R. Pyatt — Wed, 07 Feb 2024 14:54:07 +0000

GLOBAL ENERGY AGENDA

GLOBAL ENERGY FORUM

Geoffrey R. Pyatt is the US assistant secretary for energy resources at the US Department of State. This essay is part of the Global Energy Agenda.

As assistant secretary of state for energy resources, my team and I focus on two key, complementary goals: energy security and energy transition.

In nine years as a US ambassador in Europe, I witnessed time and again Vladimir Putin’s use of energy as a tool of coercion. I saw it as ambassador to Greece when Russia cut off gas supplies to neighboring Bulgaria, and as ambassador to Ukraine when Russia tried to pressure Ukraine and the EU by altering gas transit, upending the reliable flow of energy.

Since Russia’s full-scale invasion of Ukraine failed on the battlefield, Putin has unleashed a wave of brutal attacks against Ukrainian civilians and the energy infrastructure that keeps their lights on and their homes warm.

Ukraine’s power generation capacity has been degraded by almost 50 percent since February 2022. Despite this, Ukrainian energy workers, supported by a Group of Seven-plus (G7+) coalition, have done all they can to repair, restore, and harden the grid and generation facilities.

This work has, so far, prevented large-scale blackouts this winter. Ukraine has even been able to store Europe’s excess gas and help address European concerns about shortages.

Nevertheless, this war has highlighted how malevolent actors can weaponize energy resources, and the importance of diversification.

It also has demonstrated how US national security, and the security of our friends and allies, depends on energy security, and how America’s energy abundance can contribute to our alliance relationships.

The European Commission’s rapid response through its RePowerEU package and US-EU cooperation, including through the US-EU Energy Council, has helped drive new energy efficiencies to bring down demand, while the amount of US liquefied natural gas (LNG) sent to Europe has surged. Russian piped natural gas exports to Europe, which had been receding since 2020, plummeted drastically after 2022 to a new low of around 27 billion cubic meters in 2023. Making up for this significant drop in supply, US LNG producers stepped up to deliver supplies to Europe, with some 70 percent of US LNG exports last year going to the continent. Our partners have turned away from Russia as an energy source, I believe, permanently. Since 2022, US exporters have supplied the EU with approximately 90 million tons of LNG, three times as much as the next largest supplier.

The safest source of energy is what we generate ourselves, and what we can build or share with our allies and partners globally.

While the United States has met Europe’s immediate supply challenges going into this winter, the urgency of the energy transition is increasingly clear. The safest source of energy is what we generate ourselves, and what we can build or share with our allies and partners globally.

This effort starts at home. The multiplier effect of the US Inflation Reduction Act, the Bipartisan Infrastructure Law, and the CHIPS and Science Act is tremendous. The United States has entered a clean energy manufacturing renaissance, driven by public-private partnership, which has unleashed the private sector to help meet domestic and global energy needs.

These pieces of legislation have built the platforms upon which US and international companies can build value and launch the infrastructure and technologies of tomorrow.

Since the beginning of the Biden-Harris administration, private companies have announced $628 billion of investment in the industries associated with the energy transition: clean power, heavy industry, biomanufacturing, clean energy manufacturing, electric vehicles, batteries, carbon capture utilization and storage, and semiconductors.

During my meetings with energy ministers, private-sector executives, civil society, and stakeholders around the world, everyone has demonstrated their understanding that energy access affects agriculture, business, communications, education, food systems, healthcare, and transportation.

Energy security means energy access and supply without threat of coercion, and without concern over dependencies. It means a country has choice and the opportunity for growth.

Energy security means energy access and supply without threat of coercion, and without concern over dependencies. It means a country has choice and the opportunity for growth.

The energy transition has been and will continue to be an important element in ensuring our long-term energy security. But for the energy transition to succeed, it must be just.

We have created the tools to achieve this. The Minerals Security Partnership (MSP), for example, has served as a catalyst for public- and private-sector investments to build the diversified, secure, and responsible global critical minerals supply chains that underpin the minerals and metals essential to the energy transition. Everyone agrees that market dominance by a single supplier is unhealthy.

The MSP was created to offer producer countries a better deal than our adversaries. This means opportunities for local communities and value for our partners—from extraction all the way through recycling—pursued with high environmental, social, and governance standards.

The United States has also anchored the Just Energy Transition Partnerships with South Africa, Indonesia, and Vietnam, a G7+ effort to help each of these countries accelerate their energy transition with the support of multibillion-dollar assistance programs.

Additional programs like the Partnership for Global Infrastructure and Investment, an initiative to leverage over $600 billion in sustainable infrastructure financing, including for energy security and transition, are also means by which the United States and our partners have been working to help countries around the world grow at a faster pace.

The United States recognizes that nations don’t just want to decarbonize. They want to prosper.

This is a global effort. In Dubai at the 2023 United Nations Climate Conference, COP28, nearly 200 governments called on the world to transition away from fossil fuels in a just, orderly, and equitable manner. Corporations and nations pledged to significantly reduce methane emissions. The United States helped win pledges by more than one hundred countries to triple renewable energy capacity by 2030 and by twenty countries to triple deployment of safe, secure, and reliable nuclear energy from 2020 levels by 2050. The United States joined Canada, Japan, France, and the United Kingdom to mobilize billions of dollars of investment in fuel for our nuclear power plants and move away from dependence on Russian nuclear fuel supplies.

These agreements, commitments, and ambitions will shape our geopolitics for decades to come. No one country can fulfill these goals alone.

Secretary of State Antony J. Blinken, in remarks to university students at the Johns Hopkins School of Advanced International Studies last September, said that US domestic and foreign policy are more aligned than ever, and that they must be able to face the “defining tests of this emerging era.”

We face these tests in the United States, in Ukraine, in Dubai. Everywhere. It is a historic moment. To be a diplomat, working with allies and partners, you must be optimistic. When I consider our shared energy future, both its challenges and its promises, I certainly am.

We have an opportunity to transition energy systems globally and an imperative to change them now.

All essays

The energy transition can shape a more inclusive world

By Damilola Ogunbiyi

Europe needs a Green Deal that can meet the moment

By Michał Kurtyka

Countries can only achieve carbon neutrality together

By Shin Hosaka

Public funds alone can’t solve the climate crisis

By Mafalda Duarte

Accelerating clean energy in emerging markets

By Sebastian Kind

Toward net zero with a new generation of nuclear energy

By John Wagner

Partner perspective: A catalyst for cleaner energy

By Scott Strazik

Partner perspective: Climate policies must reflect developing world’s needs

By Majid Jafar

A people-centric energy transformation

By H.E. Leila Benali

Energy security as the foundation for Ukraine’s formula for peace

By German Galushchenko

Partner perspective: Energy companies are essential to global climate solutions

By Mansoor Mohamed Al Hamed

Energy security is global security

By Geoffrey R. Pyatt

The post Energy security is global security appeared first on Atlantic Council.

Ukraine opens new front with drone strikes on Russia’s energy sector

Mykola Bielieskov — Tue, 06 Feb 2024 21:43:21 +0000

Amid worsening ammunition shortages and mounting concerns over the future of Western military aid, the Ukrainian army has largely switched to active defense in recent months. Nevertheless, as the full-scale Russian invasion of Ukraine approaches the two-year mark, talk of a stalemate remains premature.

While heavy fighting continues at various hot spots along the front lines in southern and eastern Ukraine, Ukrainian commanders have begun 2024 by attempting to bring the war home to Russia with a new air strike campaign against the Russian oil and gas industry. By targeting Putin’s economically important energy sector, Ukraine hopes to weaken Russia’s war machine and create a range of dilemmas for the Kremlin.

The recent long-range Ukrainian drone strikes against energy sector targets deep inside Russia are not entirely unprecedented. Indeed, during 2023, Ukraine managed to carry out a number of successful strikes against Russian military targets.

But unlike these earlier attacks, the major feature of Ukraine’s latest drone strike campaign is the emphasis on Russia’s oil and gas processing, storage, and export facilities. Since the start of 2024, Ukraine has bombed a series of facilities located hundreds of kilometers from the border, with targets ranging from Volgograd in the south to Saint Petersburg and the Baltic Sea in the north.

These Ukrainian attacks strike at the heart of the economic engine that fuels Putin’s war machine. Oil and gas exports remain a major source of Russian GDP and have so far proved surprisingly resistant to Western sanctions, with new clients emerging to compensate for the loss of European customers. As many commentators have quipped in Kyiv, Ukraine has now decided to impose its own informal and far more direct sanctions on Russia’s energy sector.

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Ukrainian commanders believe their new long-range drone strike campaign can eventually create major disruption to the Russian economy that will translate into leverage over the Kremlin. For now, however, the scale of the drone strikes remains limited.

One key obstacle is the size of Ukraine’s delivery systems. While Ukraine is constantly upgrading its drone fleet, the country’s existing long-range UAVs are unable to carry warheads weighing more than around 50 kilograms. This means most of the damage done at Russian energy facilities is relatively easy to localize and neutralize. Ukraine also faces significant challenges navigating past Russia’s traditional air defenses and electronic warfare systems.

Despite these limitations, there are already signs that Ukraine’s long-range air strike campaign is having an impact. A February 5 report by Bloomberg indicated Russia’s weekly oil-processing rates had dropped to the lowest level in almost two months after two major refineries were forced to halt operations following Ukrainian drone strikes.

Eurasia Center events

Ukraine’s advance in Kursk: What’s next and implications

Conflict Russia Security & Defense Ukraine

Ukraine’s military planners are now hoping long-range drone strikes can force their Russian counterparts to make some difficult decisions. At present, the vast majority of Russia’s air defense assets are concentrated along the front lines of the war. These systems play a crucial role providing protection against the Ukrainian Air Force and Ukraine’s increasingly deadly drone forces. As Ukraine intensifies attacks on Russia’s energy sector, Kremlin chiefs will have to choose whether to keep their country’s limited air defense systems close to the battlefield in Ukraine or redistribute them to protect oil and gas facilities inside Russia itself.

Both scenarios could potentially lead to major risks. If Russia fails to protect critical oil and gas infrastructure, there is always a danger that the sheer quantity of Ukrainian attacks may cause serious harm to the Russian economy and compromise the Kremlin’s ability to wage war. At the same time, attempts to reinforce the defense of Russian energy facilities would leave Putin’s army in Ukraine exposed and vulnerable.

Moscow faces additional dilemmas due to Russia’s vast size, which makes it extremely challenging to provide comprehensive air defense coverage. Russian officials have recently indicated that the country lacks sufficient air defense systems to fully protect major cities like Saint Petersburg against Ukraine’s expanding long-range drone threat.

The situation is further complicated by the Russian energy industry’s reliance on Western technologies. While Ukraine is currently unable to inflict major harm due to the country’s relatively modest air strike capabilities, sanctions restrictions will likely make it difficult for Russia to replace any Western equipment damaged or destroyed by Ukrainian drones.

At present, Ukraine’s new long-range drone strike campaign is too limited in scope to derail the Russian war effort of seriously disrupt the Russian economy. However, these attacks are clearly capable of inflicting economic pain, while also increasing the pressure on Russian commanders to reduce air defense protection for their army in Ukraine. This is the same dilemma Ukrainian army chiefs have faced for much of the past two years in response to Russia’s own air strikes far beyond the front lines against civilian targets including essential infrastructure.

By attacking Russia’s energy sector, Ukrainian commanders are seeking to open a new front in the war and reshape the battlefield in Ukraine itself. The recent flurry of air strikes on Putin’s oil and gas industry underlines Ukraine’s commitment to bring the war home to Russia, even while adopting a strategy of active defense along the front lines of eastern and southern Ukraine.

Mykola Bielieskov is a research fellow at the National Institute for Strategic Studies and a senior analyst at Ukrainian NGO “Come Back Alive.” The views expressed in this article are the author’s personal position and do not reflect the opinions or views of NISS or Come Back Alive.

smeadows — Mon, 05 Feb 2024 17:18:41 +0000

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Gordon and Derentz in the Oxford Institute for Energy Studies: United States nuclear policy, small modular reactors, and global energy security

smeadows — Mon, 05 Feb 2024 14:48:27 +0000

Original source

The post Gordon and Derentz in the Oxford Institute for Energy Studies: United States nuclear policy, small modular reactors, and global energy security appeared first on Atlantic Council.

Webster quoted in The Telegraph on Taiwanese power plant defenses

smeadows — Sat, 03 Feb 2024 17:04:31 +0000

The post Webster quoted in The Telegraph on Taiwanese power plant defenses appeared first on Atlantic Council.

Khakova joins DW to discuss effects of US LNG permitting pause

smeadows — Sat, 03 Feb 2024 15:20:38 +0000

The post Khakova joins DW to discuss effects of US LNG permitting pause appeared first on Atlantic Council.

Schaffer quoted in Foreign Policy on LNG politics, economy, and supply

smeadows — Thu, 01 Feb 2024 20:46:16 +0000