After the Ukraine Invasion: Energy Realism Emerges In Germany While yhe US Doubles Down
By Tilak Doshi
I analyze energy economics and related public policy issues.
In a landmark address on February 27th to the Bundestag, the German parliament, Chancellor Olaf Scholz announced a stunning shift in the country’s defense posture and its energy policies in response to Russia’s invasion of Ukraine.
Commentators might be forgiven if they were reminded of Samuel Johnson’s adage that nothing better concentrates the human mind than the hangman’s noose.
Russia’s invasion constituted the largest military attack of one state against another in Europe since the Second World War, marking in Scholz’s view a turning point in the continent’s history.
Germany’s Radical Policy Turnaround
In a sharp reversal of Angela Merkel’s policy of free riding on US support for NATO, Germany’s new Chancellor vowed to increase military expenditure to above 2% of GDP.
This will make Germany — hitherto the laggard in defense readiness with armed forces that were “more or less stripped bare” during Merkel’s 16-year reign as noted by its Chief of Army — the largest spender on the military in Europe, with significantly higher defense expenditures than in the United Kingdom and France. “Deutschland Uber Alle”
An Irish political commentator tweeted “Germany [is] basically doing what Donald Trump demanded that they do — to widespread ridicule — for the four years of his Presidency. I know it galls people to hear it, but Trump was right about some very big things.”
In another radical departure from the timorousness of the Merkel years, Scholz agreed to deliver arms including anti-tank weapons and Stinger missiles to Ukraine directly and through third countries.
The Chancellor also signaled another major turn in its policy towards economic and financial sanctions on Russia, coordinating with the G7 bloc to exclude key Russian banks from the SWIFT international payment system and constraining the Russian central bank from supporting the ruble with its ample foreign exchange reserves.
Scholz’s announcement of a turnaround in German energy policies have been equally striking. Germany is overly dependent on Russia for its energy supplies, accounting for 60% of its gas imports, as well as 50% of its coal and 35% of its oil.
The previous Merkel government, which focused on ever closer economic relations with Moscow and a pacifist foreign policy, heavy dependence on Russian gas was not seen as a key source of energy security vulnerability.
Her government strongly supported the Nord Stream 2 gas pipeline which would have doubled shipments of Russian natural gas to Germany.
By transporting the gas under the Baltic Sea directly to Germany, Nord Stream 2 by-passes Ukraine and other East European countries which provide major routes for existing Russian gas supplies reaching Europe.
Back in November, former President of the European Council Donald Tusk said that the approval of the Nord Stream 2 pipeline from Russia was the outgoing German Chancellor Angela Merkel’s “biggest mistake”, in comments which supported the warnings from former President Donald Trump, who had imposed sanctions on the pipeline.
In July 2021, President Joe Biden, in his continued zeal to revoke every decision made by the preceding Trump administration, waived those sanctions to “mend” relations with the Merkel government.
On 22nd February, in response to Russian President Vladimir Putin’s recognition of the independence of two breakaway regions in eastern Ukraine, Scholz suspended the certification process of the completed Nord Stream 2 gas pipeline.
This was followed shortly thereafter by the Biden administration re-imposing US sanctions on the pipeline.
Perhaps in an even more striking reversal of long-settled German energy policy – which aims for a rapid transition from fossil fuels and reliance on renewables for all of the country’s energy needs — Economy Minister Robert Halbeck said that “there were no taboos in deliberations” concerning options to extend the operations of the country’s coal and nuclear power stations or in importing liquified natural gas (LNG).
Halbeck is a member of the Green party which ensured the subordination of EU energy policy to the goal of net zero emissions for Europe by 2050.
In Germany’s about-turn in energy policy, the government is now considering options to extend the operations of its coal power plants beyond 2030. The country had previously committed to a full exit from coal by that date.
To reduce dependency on Russian gas imports, Halbeck is also not ruling out options to extend the life-span of its three remaining nuclear power plants.
The country is now accelerating plans to build two LNG terminals in order to diversify its dependence on Russian gas imports.
Germany has significant storage capacity — the biggest in the EU — at around 23 billion cubic meters (bcm) and now plans to expand this by 2 bcm and intends to bring in regulations to ensure minimum storage requirements on private companies.
Biden’s Incoherent Energy Policies
If a modicum of energy realism has descended upon Germany after the shock Russian invasion of Ukraine, it would seem that the Biden administration – which joined Europe in the climate crusade immediately after it took office and which put “fighting climate change” as the country’s top national security concern – continues to pursue an incoherent energy policy that borders on ridiculousness.
Having cancelled the Keystone XL pipeline to transport over 800,000 barrels per day of oil from Canada to the US Gulf Coast refiners on his first day in office, President Biden revoked US sanctions on Russia’s Nord Stream 2 gas pipeline as already mentioned.
After issuing a series of executive orders in the first weeks of his presidency which halted oil and gas leases on federal lands and in the Alaskan Arctic refuge – essentially waging a regulatory war on US oil and gas production – the Biden presidency continues to implore OPEC to increase oil production as US gasoline prices surged to multi-year highs and approach $4.00 a gallon.
The OPEC group including kingpin Saudi Arabia have repeatedly rebuffed these requests from the US, most recently last week.
In what may plausibly be termed as energy masochism – driven by its climate change obsession — the Biden administration continues to favor the interests of the likes of Russia and Iran at the cost of those of its presumed allies.
On February 18th, in an act of bizarre timing, the Federal Energy Regulatory Commission (FERC) revised its policy for approving natural gas pipelines and export terminals which will adversely impact the already fraught permitting and construction process of new US LNG export facilities.
FERC by law must vouch that projects are in the public interest and won’t have a significant environmental impact but which now includes greenhouse gas emissions in its environmental analysis.
In yet another instance of energy policy incoherence which further empowers Russia’s energy leverage over Europe, the Biden administration abruptly withdrew support for, and thereby killing, the Eastern Mediterranean natural gas pipeline project in January.
It did this without consulting its closest allies in the Mediterranean region, Israel, Greece and Cyprus.
The ‘EastMed’ pipeline, designed to bring natural gas from the offshore fields of Israel and Cyprus across Greece to Italy and Bulgaria, was supported by Mike Pompeo, the previous US Secretary of State, when he was in office.
Yet another source of much needed diversification of natural gas supplies for Europe has thus been vetoed by President Biden.
But perhaps US energy policy incoherence is best exemplified by John Kerry, President Biden’s climate envoy. Straight out from the “you can’t make this up” file, Kerry stated surreally, in an interview on BBC Arabic, last week, that he hoped Vladimir Putin would “stay on track” in the fight against climate change on the day Russia unleashed the invasion of Ukraine.
Geopolitical Realism and Energy Realism
Author and energy commentator Rupert Darwall states concisely that geopolitical realism requires energy realism. Keen observers of realpolitik and energy affairs with an understanding of basic economics, such as President Putin, are under no illusions.
While Europe was busy deconstructing its modern energy infrastructure in the vain hope random wind and solar are enough to power modern civilization, President Putin was doing all he could to develop Russia’s fossil fuel resources.
In late 2020, Professor Fritz Vahrenholt – with a career that included positions in Federal Environmental Agency in Berlin, and as minister for energy and environment in Hamburg state — stated , baldly, in a German TV interview, that climate science was “politicized”, “exaggerated”, and filled with “fantasy” and “fairy tales”.
He predicted Europe “will reach the [climate policy] targets, only if they destroy the European industries.”
He castigated Germany as a country “in denial when it comes to the broader global debate taking place on climate science”.
He went on to characterize Europe’s recent push for even stricter emissions reduction targets as madness akin to Soviet central planning that is doomed to fail spectacularly.
Perhaps it takes a Putin with the hangman’s noose to convince Germans that Prof. Vahrenholt is right on the mark.
- I have worked in the oil and gas sector as an economist in both private industry and in think tanks, in Asia, the Middle East and the US over the past 25 years.
- I focus on global energy developments from the perspective of Asian countries that remain large markets for oil, gas and coal.
- I have written extensively on the areas of economic development, environment and energy economics.
- My publications include “Singapore in a Post-Kyoto World: Energy, Environment and the Economy” published by the Institute of Southeast Asian Studies (2015).
- I won the 1984 Robert S. McNamara Research Fellow award of the World Bank and received my Ph.D. in Economics in 1992.