Power in Europe costs twice as much as in the US in 2023. With Trump 2.0 already prepping LNG exports, will Europe lose its motivation for energy efficiency?
This article is part of our special report Energy transition and the new mandate, what lies ahead?.
Europe’s divorce from Russian gas following the invasion of Ukraine, has not been smooth sailing. The election of Donald Trump to the White House and challenges with the energy price gap will likely add complications.
It has been more than two years since the launch of REPowerEU, an initiative to phase out Russian fossil fuel imports in the European Union by 2027, save energy, diversify energy supplies, and produce clean energy.
During this time, the EU reports it has managed, among other successes, to reduce gas consumption by 18 per cent, overcome its dependency on Russian fossil fuels, and produce more electricity from wind and solar than from gas for the first time.
Despite these achievements, the EU has struggled to navigate strong tides for the past two years, having historically relied on Russian fossil fuel supplies, particularly the natural gas transported via pipelines like Nord Stream.
The geopolitics of gas
An analysis conducted by The Brookings Institution notes that despite Europe’s quick and creative response to the energy crisis caused by the war, Russian gas still found its way to the EU, laundered or not, circumventing rounds of sanctions.
Russian gas accounted for 14.8 per cent of Europe’s total gas supply, highlighting vulnerabilities in specific member states. Russia’s strategy to manipulate gas supply for political leverage was part of a broader geopolitical effort to deepen Europe’s energy dependence.
Although Russia struggles with redirecting its gas exports, as existing infrastructure does not easily connect to other major markets like China, its partners within the EU have been fierce in advocating for Russian gas.
Over the summer, Slovakia and Hungary rejected the Commission’s suggestion to use Croatia’s Adriatic pipeline to replace halted Russian oil supplies, citing high costs and reliability concerns.
All eyes on diversifying
Another analysis by Ember, a global energy think tank, observed that many member states have yet to meet EU energy goals. Draft national energy and climate plans (NECPs) and policies suggest that renewable energy will play a significant role.
Projections show renewables could generate 66 per cent of EU electricity by 2030, and ambitious wind and solar capacity targets have increased dramatically since 2019. However, they still fall short of the 72 per cent target set by REPowerEU.
The EU will reportedly support the Vertical Gas Corridor project to diversify gas supplies in Southeast, Eastern, and Central Europe, enhancing the region’s energy connectivity. It will expand transportation capacity for regasified liquefied natural gas (LNG), especially from the US.
Despite reduced Russian pipeline gas imports, higher prices have lessened the decline’s economic impact. Russian LNG imports have risen, increasing Russia’s share of the EU LNG market. US LNG, which played a crucial role in easing Europe’s energy crisis in 2022-2023, will remain essential.
The Trump factor in the equation
In light of global challenges, Donald Trump’s return to the White House, and a potential, yet unclear, Ukraine peace proposal, Europe has an opportunity to fortify its energy strategy and support Ukraine along the way.
The Centre for Research on Energy and Clean Air (CREA) called on the new Commission to implement strict guidelines for phasing out Russian oil and address loopholes, including shadow tanker operations.
While Russia’s influence on natural gas remains evident, current dependency levels risk ongoing financial support for Moscow’s war effort, estimated at €11 billion in gas payments in 2025.
To avoid temptations to revert to Russian energy, the Commission is encouraged to legally enforce its targets. Only by prioritising firm, binding policies the EU can support Ukraine, secure its energy future, and demonstrate leadership amid global geopolitical shifts, argues CREA.
Energy price gap will worsen
A study by BusinessEurope shows that high energy prices are threatening European companies’ global competitiveness. By 2050, even with supportive policies, energy costs in Europe could be at least 50 per cent higher than in the US, China, and India.
The study calls for action to close the energy competitiveness gap and manage carbon costs and finds that lifting obstacles to renewable development and optimising locations could lower wholesale power prices by nearly 40 per cent.
Though energy prices have fallen, they remain higher compared to the period before 2022 and competitors. Power in Europe cost twice as much as in the US in 2023, according to estimates by the International Energy Agency.
An analysis by Bruegel states that while energy prices are important, they are only one factor in determining competitiveness. Studies show that countries with high energy prices often export higher-value products.
The analysis concludes Europe can remain competitive by focusing on efficiency improvements and reforming climate policies. This approach could help achieve decarbonisation goals at lower costs, even with higher energy prices than the US.
