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What Europe's Energy Crunch Reveals

Societies that cannot accept today’s energy prices are unlikely to prepare adequately for the green transition, regardless of their long-term net-zero promises. They are instead likely to act too late and thus too suddenly, which will be not only economically costly, but also politically untenable.

BRUSSELS – This month represents an important milestone in the fight against global warming – and not only because of the United Nations Climate Change Conference (COP26) currently underway in Glasgow. Although many countries announced ambitious emissions-reduction targets in the run-up to the gathering, these often extend a generation into the future, to 2050 or even 2060.

Meanwhile, governments in Europe and elsewhere face an immediate energy crisis in the form of surging gas and oil prices. And how they react to it will reveal much more than their long-term net-zero pledges do about their ability to manage the concrete challenges of the green transition.

The current energy-price spike is a classic case of an accident that was waiting to happen. Years of low prices, combined with regulatory pressure on banks to reduce their exposure to brown industries, have naturally depressed investment in fossil fuels. A faster-than-expected rebound from the COVID-19 recession, plus somewhat colder weather in the Northern hemisphere, were then enough to drive up prices to their highest levels in a decade.