Analysis by Ember and Global Witness finds that persistently high gas prices could cost Europe €250 billion more than the European Commission estimated.
This analysis by Ember and Global Witness examines the fossil gas consumption in the EU’s “Fit for 55” policy package. It finds that, at current gas prices, the projected gas demand for 2030 could cost Europe €250 billion more than the European Commission originally estimated.
Faced with the war in Ukraine, Europe rightly aims to reduce the continent’s reliance on Russian fossil fuels. As fossil gas prices are set to remain high and volatile for years, failing to drastically reduce Europe’s gas dependency would expose the Union and its citizens to exorbitant and avoidable financial risk. Instead of gambling away up to €250 billion on a polluting fossil fuel, this money is better spent on a transition that can bring stable, clean and affordable energy to all Europeans.
The devastating war in Ukraine has significantly increased the urgency for Europe to end its fossil gas addiction. Russia’s invasion has made the geopolitical, social and economic risks associated with dependence on imported fossil gas, particularly from Russia, even more obvious.
Since 24 February, the day-ahead price on Europe’s benchmark wholesale gas market, the Dutch Title Transfer Facility (TTF), has averaged €112 per megawatt hour (MWh). Over the same period in 2021 the average price was €19/MWh – representing a surge of 490%. Prices jumped to new record highs on 8 March 2022 settling at €216/MWh.
And it is not just affecting gas, nor is it temporary. These hikes in fossil fuel prices and volatility have severe knock-on effects for electricity prices and inflation, and they seem unlikely to subside for at least the next three years. Skyrocketing prices are exacerbating an already dire situation: even before the current price shock, up to one in four European households could not afford to adequately heat, cool or light their homes. In March, the International Panel on Climate Change called for a substantial reduction of overall fossil fuel use if governments aim to limit global warming to 1.5°C. It placed the risk of global stranded assets in fossil fuel reserves and infrastructure at higher than $1 – 4 trillion by 2050. We have moved into an era of structurally high prices and sustained risk associated with fossil fuel dependence.
The EU and its citizens cannot afford to remain exposed to these unprecedented and unnecessary levels of risk.
The EU Commission’s impact assessment for the “Fit-for-55” policy package (FF55) used fossil gas prices for 2025 and 2030 which are now 270% and 70% lower respectively than current market forecast prices for those years. At these higher price levels, unless further action is taken to reduce gas demand compared to the original FF55 proposal, fossil gas could cost the EU an additional €120 billion in 2025 and €42 billion in 2030 (MIX scenario) more than the Commission’s original cost estimates.
The average cost of gas for 2022 is currently expected to be €98/MWh. If prices remain this high, which the price volatility of the past year has shown cannot be ruled out, fossil gas could cost the EU an additional €315 billion in 2025 and €250 billion in 2030.
Even minimal shifts in the gas price have huge cost implications. Every €1/MWh increase in the 2025 or 2030 calendar year gas prices (TTF) equates to a €3 billion invoice for the EU. On 21 April the TTF 2025 price spiked by €4.15/MWh and on 3 March the TTF 2030 price jumped by €2.34/MWh, demonstrating the scale and reality of the financial risk.
The European Commission REPowerEU communication released in March contained strategies to cut Russian fossil gas imports into the EU. These proposals could potentially see total EU 2030 gas demand reduce to 2280 TWh (-19%), equating to a saving of €8 billion at the current forecast 2030 TTF gas price. However, more ambitious gas demand reductions are possible. For example, the renewables-focused Paris Agreement Compatible Scenarios for Energy Infrastructure (PAC) has 2030 gas demand as low as 1416 TWh. This would reduce those gas costs by €21 billion. If the current 2022 gas price is applied, these savings rise to €47 billion and €123 billion for the REpowerEU and PAC demand scenarios respectively.
The European Commission has recognised the urgent need to end Russian fossil fuel dependence and outlined ways to achieve this, both in the short-term and by 2030. However, the proposals do not go far enough and leave the EU extremely vulnerable to fossil gas price and supply uncertainty.
The EU imported ~350 billion cubic metres (bcm) of gas in 2021. 155 bcm (45%) of these imports were from Russia. Under the existing REPowerEU strategy, the European Commission proposes actions to reduce Russian gas imports by two-thirds by the end of 2022, predominantly by securing alternative sources of supply.
While this strategy is understandable as an immediate solution, in the longer term the EU must take this opportunity to end its reliance on all gas, not just Russian gas. Otherwise, it risks simply replacing one gas dependency with another and prolonging its exposure to global fossil fuel market dynamics and volatility.
Diversifying gas supply rather than accelerating the clean transition away from all fossil fuels will exacerbate the EU’s exposure to unnecessary economic and geopolitical risks, worsen the energy poverty crisis, negatively impact developing countries due to inflated prices, and derail climate objectives.
In January, Fatih Birol of the IEA declared that a commodity price shock would add $US741 (€584) to the average EU household bill in 2030 if governments continued with their stated policies. He concluded that clean energy investment remains inadequate and needs to triple by 2030 to get the world on track to limit global warming to 1.5 °C.
A recent report found that the EU can reduce gas demand and end Russian gas imports by 2025 through clean energy solutions – without building new gas import infrastructure, committing to expensive long-term gas contracts or extending coal power. This requires urgent action and considerable effort to achieve a massive expansion of wind and solar deployment and a significant increase in energy efficiency and electrification measures.
The EU’s “Fit for 55” policies must be ramped up as they were set in the now redundant paradigm before the energy crisis and Russia’s invasion of Ukraine. This includes increasing the EU’s 2030 renewable energy target to at least 50% and energy savings target to 45%. The European Commission should also carry out a new impact assessment for its recently proposed reform of the EU’s gas market rules.
As high prices and volatility seem here to stay, the best way to shield consumers and mitigate risks is to reduce fossil fuel consumption through the accelerated deployment of cheaper, cleaner, homegrown renewables.
Ember is an energy think tank that aims to accelerate the clean energy transition with data and policy. Ember is the trading name of Sandbag Climate Campaign CIC, a Community Interest Company registered in England & Wales #06714443. 'Ember' and 'Sandbag' are trademarks held at the United Kingdom and European Union Intellectual Property Offices. All content is released under a Creative Commons Attribution Licence (CC-BY-4.0). Website powered by 100% renewable electricity.
