vives14_Stefan Sauerpicture alliance via Getty Images_gas pipeline Stefan Sauerpicture alliance via Getty Images

Is an Energy Winter Coming to Europe?

Surging electricity prices in Europe have offered a preview of what awaits developed economies as they usher in new energy systems in pursuit of net-zero greenhouse-gas emissions. Short-term disruptions are not yet avoidable, but they can be mitigated with deft management.

BARCELONA – The European Green Deal aims to reduce Europe’s greenhouse-gas emissions to net zero by 2050, not least through decarbonization of the energy sector. But while Europe wants to be a global leader in the fight against climate change, the question is whether it can achieve its goal and at what cost. The task is formidable, and the obstacles are daunting.

The COVID-19 crisis demonstrated the scale of the changes that are needed to reduce carbon usage massively. Consumers and politicians want to avoid such a shock by phasing in stable supplies of cheap, green energy. Good policy and technological progress will bring that objective within reach; but, for now, there are trade-offs.

Because carbon must be taxed sufficiently to account for the negative climate externality it generates, the price of carbon-dioxide emissions must go up, which will make electricity more expensive. That, together with an increase in natural-gas prices, is why Europeans have experienced a recent surge in wholesale electricity prices. The political consequences of this development were foreshadowed in the 2018-19 gilets jaunes (yellow vests) revolt in France, which was a response to only a moderate increase in fuel taxes.

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