Europe is striving for progress on green packaging, but faces significant challenges. Weak economic growth, high energy prices, excessive regulation and declining industrial competitiveness are putting the focus on the energy transition, affordability and security of supply. The balance between short-term economic growth and stability on the one hand and long-term sustainability on the other is a complex task for policymakers, and Europe is struggling to find the right balance.

President Trump's trade policy, the EU-US trade agreement and tariffs are hurting European industry, as is Trump's energy strategy, which is geared towards US energy dominance.

The lack of cohesion within the EU and its regulation-driven system risks marginalising Europe, especially at a time when the US and China are reshaping global trade rules and their growing rivalry is ushering in an era of global uncertainty. Europe must overcome its internal divisions and reshape its economy, but also its energy transition – Draghi's strategy must be implemented – in order to remain relevant on the world stage.

Europe turns to

U.S. LNG

The U.S. strategy for the EU and the entire region is to completely end dependence on Russian gas and energy and replace it with U.S. LNG and energy. Europe agreed in October on a gradual phase-out of all Russian pipeline gas and LNG imports; a complete import ban is to come into force by the end of 2027.

In addition, in July, the EU pledged to import up to $750 billion worth of US energy products, mainly LNG, by 2028. This commitment was part of a broader trade and customs agreement between the EU and the US, which aims to strengthen energy security by substituting Russian energy imports. However, given the tense political relations between the EU and the US, this risks eliminating one energy dependency and creating another at the same time.

Challenges

Although renewables now account for more than 50% of electricity generation in the EU, Europe is experiencing some tough reality checks:

• Electricity prices are too high – wholesale electricity prices in the EU are 2-3 times higher than in 2020 and 2-3 times higher than in the US and China (Figure 1).
• Electricity grid infrastructure has become a bottleneck for further expansion and will require €1.4 trillion in new investment by 2040 to bring it to the required level       .
• The economics of capital-intensive offshore wind farms are becoming increasingly difficult, which is reflected in project cancellations in Denmark, the UK and the Netherlands.

The combination of lower wind speeds, less sunshine and drought conditions poses a significant challenge to Europe's energy systems and water resources.

These factors will only increase over time. Europe's electricity demand is expected to increase by more than 30% by 2030, driven by electric vehicles, data centers, and artificial intelligence, as well as the increasing need for cooling and heating as global weather becomes more extreme due to climate change.

The massive power outages in Spain and Portugal in April highlighted how insecure our energy systems have become and raised questions about the resilience of Europe's grid infrastructure. The IEA has pointed out that "systemic challenges will arise if electricity grids, which are increasingly dominated by renewables, need to be balanced in prolonged periods of low generation."

The blackout has shown that Europe needs more connectivity, more electricity storage, grid expansion and more advanced technologies to manage the grid and strengthen its resilience. In addition, a balanced energy mix, including base-load power plants, is needed to compensate for the fluctuations of growing renewable energies and to ensure a stable and reliable power supply.

And above all, an electricity market design is needed that lowers the stubbornly high energy prices, improves the competitiveness of industry and reduces the unbearable burden on households.

These challenges have redirected the focus to security of supply and energy independence. They are more important than ever and are considered crucial for national security. Voters' anger over high energy prices is growing, leading to short-term thinking and a shift to the right.

The transition to a decarbonized global economy is lagging behind and may be losing momentum. It will take place, but it is unlikely to succeed by 2050.

This is also happening in Europe, where the transition to a low-carbon economy is losing momentum as prohibitively high electricity prices continue to undermine both household adoption of clean technologies and industrial competitiveness.

These problems were already becoming more serious before President Trump's second term. He has only intensified it. As tariffs affect costs, including material costs, the continuation of these tariffs will inevitably have a negative impact on the energy transition by disrupting supply chains that rely heavily on global trade.

In addition to these developments, Europe is facing economic challenges, and investment in clean energy and energy infrastructure is now inevitably competing with the need to invest in defence, which has become a top priority.

In fact, the world is moving into an age of "energy addition," where increasing energy demand is met by a combination of low-carbon energy sources and natural gas. This requires higher investments in new energy systems, especially in power grids and energy storage.

If the grid and storage capacity bottlenecks are not addressed urgently, the expansion of renewable energies and electricity generation could be delayed. In addition, there will be increasing restrictions on the feed-in of renewable energies, as outdated systems cannot accommodate them.

Europe must prioritise competitiveness and energy resilience.

The EU is increasingly marginalised in international forums and overshadowed by the US and China. At the COP30 global climate summit in Brazil, their lack of unity and their weakness in dealing with the new geopolitical realities without the support of the US became clear. She was expected to take on more responsibility, but in the face of the determination of China, India, Saudi Arabia and Russia, she could not get her way. De facto, the Europeans (EU and Great Britain) were pushed to the sidelines. As already stressed at COP30, the EU needs to overcome its internal divisions if it wants to be a leader in energy and climate.

In a world where the US and China are fighting a fierce battle and the global economy is fragmented, it is likely that everyone will be worse off in absolute terms if Europe does not stand firm.

Concerns about Europe's industrial decline have already intensified due to very high energy prices, the imposition of Trump's tariffs and the flood of cheap Chinese goods in the EU market. Europe remains competitive, has little to offer and is increasingly displaced, with no hope of recovery in the near future.

If this is to change, Europe must move away from excessive regulatory pressure and prioritise lower prices, especially in the energy sector – this strengthens the economy and promotes competitiveness. Europe must become energy independent. At the moment, there is a lack of what harms us.

Dr. Charles Ellinas is a member of the Atlantic Council. The article was adapted from the blog of the Cyprus Economic Society (https://cypruseconomicsociety.org/blog/blog-posts/).





Author: MFRadio Editors courtesy of CyprusMail.com
sources: CyprusMail.com
Dr. Charles Ellinas is a Senior Fellow of the Atlantic Council's Global Energy Center and has 35 years of experience in senior positions in the oil and gas sector. He is a regular columnist for the Cyprus Mail.