Ukraine, Globalisation, Net Zero and consumers

I was going to write about the conflict in the Ukraine and the implications, a couple of weeks ago, but as the situation has developed more themes have developed.

The situation in Ukraine is a terrible indictment of our international structures and I’m afraid to say the UN, which has again proved itself incapable of action, given the veto powers of major states. But, aside from its veto, Russia’s power in Ukraine is a combination of the implications of challenging Russia and the dependence of Europe on Russian oil and gas. In my talks on net zero I discuss how many of the recent wars and conflicts have been about carbon (just think back over the last 50 years), Ukraine is not a war about carbon but is one which is being paid for by Russia from carbon income, income which European consumers and businesses have paid, and continues to pay, to Russia.

The shock of what has happened has started to show how much which we have assumed in our world order to be reliable is actually either fragile or needs reconsideration. The impact on German policy has been dramatic in the field of defence, but in achieving net zero, Germany is still hamstrung by its no nuclear power policy. Back in 2000, 29.7% of German power generation came from nuclear, in 2022 it will be nil. Germany is not alone, Ireland, Italy, Switzerland, Belgium, Denmark, Portugal and Austria source no power from nuclear (they are fine buying nuclear power generated by their neighbours). So, the road to net zero will be paved by buying gas, and some of that gas will be bought from Russia. A non-nuclear policy for some of these countries funds Russia because they rely on gas. And now we see what that funding leads to. Those who continue to oppose nuclear and lament the fate of Ukraine, need to look at the consequences of their decisions to oppose nuclear power.

Blackrock, has identified that the ramifications of Russia’s war and the positions taken by other countries may presage the end of globalisation. It is perhaps early to call this, but certainly we may have seen the high water mark of globalisation. As I wrote in Net Zero Our Choice, net zero and a dependence on electricity generated by non carbon sources leads to a regional not global market for power. Transmission losses limit the distance over which electricity can effectively be transported.

It may also lead to a more local approach to supply chains (and Blackrock identifies this) from a security perspective but also because transporting goods across the world rather than locally has a power cost and will for some time have a carbon cost (think shipping). But such a change will increase costs as goods are produced in higher cost countries and regions to supply markets in those countries. Will our consumerist binge be constrained by price?

The other theme about consumers relates to power and oil costs. The constriction of supply has led to price increases, dramatic increases. The response has been twofold, what do we do about the cost of living and what do we do about energy security? This is understandable as a reaction, and while politics is about short term and long term issues, politicians tend to prioritise short term issues. But what is happening is politicians calling for measures which are addressing these price and security issues by relegating the importance of the net zero trajectory.

The UK is considering encouraging more gas production from the North Sea for energy security reasons. Given my writing above, this makes sense if the perspective is strategic in regard to Russia (better produce it ourselves, than pay Russia for it), but it doesn’t if that action slows down action leading to reducing carbon emissions – burning UK gas instead of Russian gas doesn’t reduce emissions. Is there a danger that as these security issues are addressed, we become comfortable with using gas – that won’t help achieve net zero.

It is also understandable for governments to subsidise power costs to consumers from a political perspective, but if that subsidy is for carbon sources it won’t help achieve net zero. What  that requires is investment quickly in nuclear and renewables by all European countries.

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