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Europe Has Fallen Behind the U.S. and China. Can It Catch Up?

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A “competitiveness crisis” is raising alarms for officials and business leaders in the European Union, where investment, income and productivity are lagging.Europe’s share of the global economy is shrinking, and fears are deepening that the continent can no longer keep up with the United States and China.“We are too small,” said Enrico Letta, a former Italian prime minister who recently delivered a report on the future of the single market to the European Union.“We are not very ambitious,” Nicolai Tangen, head of Norway’s sovereign wealth fund, the world’s largest, told The Financial Times. “Americans just work harder.”“European businesses need to regain self-confidence,” Europe’s association of chambers of commerce declared.The list of reasons for what has been called the “competitiveness crisis” goes on: The European Union has too many regulations, and its leadership in Brussels has too little power. Financial markets are too fragmented; public and private investments are too low; companies are too small to compete on a global scale.“Our organization, decision-making and financing are designed for ‘the world of yesterday’ — pre-Covid, pre-Ukraine, pre-conflagration in the Middle East, pre-return of great power rivalry,” said Mario Draghi, a former president of the European Central Bank who is heading a study of Europe’s competitiveness.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Can Europe Save Forests Without Killing Jobs in Malaysia?

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    The European Union’s upcoming ban on imports linked to deforestation has been hailed as a “gold standard” in climate policy: a meaningful step to protect the world’s forests, which help remove planet-killing greenhouse gases from the atmosphere.The law requires traders to trace the origins of a head-spinning variety of products — beef and books, chocolate and charcoal, lipstick and leather. To the European Union, the mandate, set to take effect next year, is a testament to the bloc’s role as a global leader on climate change.The policy, though, has gotten caught in fierce crosscurrents about how to navigate the economic and political trade-offs demanded by climate change in a world where power is shifting and international institutions are fracturing.Developing countries have expressed outrage — with Malaysia and Indonesia among the most vocal. Together, the two nations supply 85 percent of the world’s palm oil, one of seven critical commodities covered by the European Union’s ban. And they maintain that the law puts their economies at risk.In their eyes, rich, technologically advanced countries — and former colonial powers — are yet again dictating terms and changing the rules of trade when it suits them. “Regulatory imperialism,” Indonesia’s economic minister declared.The view fits with complaints from developing countries that the reigning international order neglects their concerns.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Eurozone Inflation Eases on Lower Energy Prices

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    The rate of price increases in countries using the euro slowed to 9.2 percent in December, down from 10.1 percent a month earlier.Lower energy prices helped to push inflation in Europe lower last month, the European Commission reported on Friday, but many prices are still rising at a brisk pace and policymakers have given little indication that they plan to halt planned interest rate increases.Consumer prices in the countries that use the euro as their currency rose at an annual rate of 9.2 percent in December, down from the double-digit levels of 10.1 percent in November and 10.6 percent in October.Declines in inflation reported this week in France, Germany and Spain sparked hopes that the relentless rise across the continent may have finally peaked. But several influential voices urged caution, noting that while the so-called headline rate of inflation has eased, core inflation, which strips out volatile food and energy prices, has not shown the same drop. In fact, for December, the eurozone’s core rate of inflation rose to 5.2 percent, from 5 percent the month before.Europe has benefited from a streak of mild weather, which has lowered the demand for energy, particularly the natural gas used to power much of the continent’s heating infrastructure. Several governments have also offered subsidies to blunt the painfully high energy prices that consumers pay. The drop in Germany’s inflation rate, to 9.6 percent in December from 11.3 percent the month before, was partly due to one-time assistance to help households pay their energy bills, according to the government’s statistics office.The data showed that energy prices in the eurozone rose at an annual rate of 25.7 percent in December, down from as high as 41.5 percent in October. “Europe is very lucky at the moment with the weather,” said Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics. He added that government energy relief had inserted a “wedge between reality and the data.”“It’s a price control,” he said, and “once you take out that, it’s not as clear that inflation is that benign.”Nearly all eurozone countries marked a decline in their main inflation rate in December, including France (6.7 percent, from 7.1 percent in November), Italy (12.3 percent, from 12.6 percent), Spain (5.6 percent, from 6.7 percent) and the Netherlands (11 percent, from 11.3 percent). The numbers bolstered the argument that the eurozone’s record-setting pace of inflation in the past year will slowly lose steam in 2023. “We are likely past the peak,” said Riccardo Marcelli Fabiani, an economist at Oxford Economics, in a note on Friday. But he added, “we expect inflation to cool only gradually, remaining high in the short term.”The European Central Bank, which has a target of 2 percent annual inflation, has already indicated that it is likely to raise interest rates half a point in February. Christine Lagarde, the bank’s president, said last month that she expected interest rates to rise “significantly further, because inflation remains far too high and is projected to stay above our target for too long.”The December data, showing easing overall inflation but persistent underlying price pressure, will probably stoke “tense negotiations among policymakers in the next few months” noted Mr. Vistesen after the numbers were released. The Federal Reserve, the U.S. central bank, is also expected to continue raising rates.This week, Gita Gopinath, first deputy managing director of the International Monetary Fund, told the Financial Times that the Fed should “stay the course” with its planned increases.“I think it’s clear that we haven’t turned the corner yet on inflation,” she said. At the same time, the fund has also projected that a third of the world economy will face recession this year. More

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    Shock Waves Hit the Global Economy, Posing Grave Risk to Europe

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    The threat to Europe’s industrial might and living standards is particularly acute as policymakers race to decouple the continent from Russia’s power sources.Russia’s invasion of Ukraine and the continuing effects of the pandemic have hobbled countries around the globe, but the relentless series of crises has hit Europe the hardest, causing the steepest jump in energy prices, some of the highest inflation rates and the biggest risk of recession.The fallout from the war is menacing the continent with what some fear could become its most challenging economic and financial crisis in decades.While growth is slowing worldwide, “in Europe it’s altogether more serious because it’s driven by a more fundamental deterioration,” said Neil Shearing, group chief economist at Capital Economics. Real incomes and living standards are falling, he added. “Europe and Britain are just worse off.”Several countries, including Germany, the region’s largest economy, built up a decades-long dependence on Russian energy. The eightfold increase in natural gas prices since the war began presents a historic threat to Europe’s industrial might, living standards, and social peace and cohesion. Plans for factory closings, rolling blackouts and rationing are being drawn up in case of severe shortages this winter.The risk of sinking incomes, growing inequality and rising social tensions could lead “not only to a fractured society but a fractured world,” said Ian Goldin, a professor of globalization and development at Oxford University. “We haven’t faced anything like this since the 1970s, and it’s not ending soon.”Other regions of the world are also being squeezed, although some of the causes — and prospects — differ.Gazprom, Russia’s state-owned energy company, said this week that it would not resume the flow of natural gas through its Nord Stream 1 pipeline until Europe lifted Ukraine-related sanctions.Hannibal Hanschke/EPA, via ShutterstockHigher interest rates, which are being deployed aggressively to quell inflation, are trimming consumer spending and growth in the United States. Still, the American labor market remains strong, and the economy is moving forward.China, a powerful engine of global growth and a major market for European exports like cars, machinery and food, is facing its own set of problems. Beijing’s policy of continuing to freeze all activity during Covid-19 outbreaks has repeatedly paralyzed large swaths of the economy and added to worldwide supply chain disruptions. In the last few weeks alone, dozens of cities and more than 300 million people have been under full or partial lockdowns. Extreme heat and drought have hamstrung hydropower generation, forcing additional factory closings and rolling blackouts.A troubled real estate market has added to the economic instability in China. Hundreds of thousands of people are refusing to pay their mortgages because they have lost confidence that developers will ever deliver their unfinished housing units. Trade with the rest of the world took a hit in August, and overall economic growth, although likely to outrun rates in the United States and Europe, looks as if it will slip to its slowest pace in a decade this year. The prospect has prompted China’s central bank to cut interest rates in hopes of stimulating the economy.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More

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    Portugal Could Hold an Answer for a Europe Captive to Russian Gas

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    Portugal has no coal mines, oil wells or gas fields. Its impressive hydropower production has been crippled this year by drought. And its long-running disconnect from the rest of Europe’s energy network has earned the country its status as an “energy island.”Yet with Russia withholding natural gas from countries opposed to its invasion of Ukraine, the tiny coastal nation of Portugal is suddenly poised to play a critical role in managing Europe’s looming energy crisis.For years, the Iberian Peninsula was cut off from the web of pipelines and huge supply of cheap Russian gas that power much of Europe. And so Portugal and Spain were compelled to invest heavily in renewable sources of energy like wind, solar and hydropower, and to establish an elaborate system for importing gas from North and West Africa, the United States, and elsewhere.Now, access to these alternate energy sources has taken on new significance. The changed circumstances are shifting the power balances among the 27 members of the European Union, creating opportunities as well as political tensions as the bloc seeks to counter Russia’s energy blackmail, manage the transition to renewables and determine infrastructure investments.The Alto Tamega dam, part of a hydropower facility in northern Portugal that will be operational in 2024.Matilde Viegas for The New York TimesThe urgency of Europe’s task is on display this week. On Wednesday, Russia’s energy monopoly, Gazprom, again suspended already reduced gas deliveries to Germany through its Nord Stream 1 pipeline. With natural gas costing about 10 times what it did a year ago, the European Union has called for an emergency meeting of its energy ministers next week.As Brussels tries to figure out how to manage the crisis, the possibility of funneling more gas to Europe through Portugal and Spain is gaining attention.Portugal and Spain were among the first European nations to build the kind of processing terminals needed to accept boatloads of natural gas in liquefied form and to convert it back into the vapor that could be piped into homes and businesses.This imported liquefied natural gas, or L.N.G., was more expensive than the type much of Europe piped in from Russia. But now that Germany, Italy, Finland and other European nations are frantically seeking to replace Russian gas with substitutes shipped by sea from the United States, North Africa and the Middle East, this disadvantage is an advantage.Solar panels in Sintra. Connecting such panels to Europe’s electricity grid could help ease energy shortages on the continent.Matilde Viegas for The New York TimesTogether, Spain and Portugal account for one-third of Europe’s capacity to process L.N.G. Spain has the most terminals and the biggest, though Portugal has the most strategically located.Its terminal in Sines is the closest of any in Europe to the United States and the Panama Canal; it was the first port in Europe to receive L.N.G. from the United States, in 2016. Even before the war in Ukraine, Washington identified it as a strategically important gateway for energy imports to the rest of Europe.Spain also has an extensive network of pipelines that carry natural gas from Algeria and Nigeria, as well as large storage facilities.Understand the Decline in U.S. Gas PricesCard 1 of 5Understand the Decline in U.S. Gas PricesGas prices are falling. More

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    Estonia Never Needed to Import Gas by Ship. Until It Did.

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    In Paldiski, Estonia, abandoned Soviet-era bunkers, splattered with graffiti and overgrown with weeds, are a reminder of the centuries-long domination that Russia once exerted over the Baltic region.Now this port city in the northwestern corner of the country is hastily being turned into a bulwark against Russian efforts to politically pressure Europe. Ever since Moscow threatened to withhold natural gas as retribution for countries opposed to its invasion of Ukraine, workers in Paldiski have been constructing an offshore terminal for non-Russian gas at a round-the-clock pace.The project is one piece of Europe’s strategy to quickly wean itself off the Russian energy that is heating homes and powering factories across the continent.The Estonian terminal will serve as a floating dock for a gargantuan processing tanker that will receive deliveries of liquefied natural gas and convert it back into a vapor that can be piped through the existing network that serves the Baltics and Finland. With a scheduled finish date in November, Paldiski is on route to be the first new L.N.G. terminal completed in Europe since the war started.Shipping natural gas in a liquefied form has become Europe’s eureka solution to what the European Commission has labeled “energy blackmail” by President Vladimir V. Putin of Russia. Since the fighting began in late February, 18 new facilities or expansions of existing ones have been proposed in 11 European countries, including Germany, the Netherlands, Italy and Greece, according to Rystad Energy.The L.N.G. project in Paldiski is one of 18 proposed or under expansion in Europe since Russia attacked Ukraine.Marta Giaccone for The New York TimesGiant beams were installed with a floating crane.Marta Giaccone for The New York TimesEuropean leaders have been traveling to the Middle East and Africa — including to some countries previously held at arm’s length because of human rights abuses — to compete for the world’s limited L.N.G. supply or plead for the rapid development of additional sources. Until the war, China, South Korea and Japan were the biggest customers.“L.N.G. is really the only supply element that is able to step up for the coming years” during the transition to more climate-friendly renewable energy sources, said James Huckstepp, head of European gas analysis at S&P Global Commodity Insights.Although the United States and Qatar, the biggest producers of L.N.G., are ramping up operations, it will take at least a couple of years to significantly increase capacity. So businesses and households are bracing for high prices and painful shortages during the cold winter months. Governments have drawn up emergency plans to cut consumption and ration energy amid dark warnings of social unrest.Marti Haal, the founder and chairman of the Estonia energy group Alexela, shakes his head at the feverish race to construct liquefied natural gas terminals. He and his brother, Heiti, proposed building one more than a dozen years ago, arguing that it was dangerous for any country to be solely dependent on Russia for natural gas.“If you would talk with anyone in Estonia in 2009 and 2010, they would call me and my brother idiots for pursuing that,” Mr. Haal said. He was driving his limited-edition Bullitt Mustang, No. 694, in Steve McQueen green, to the site of the terminal in Paldiski that his company is now building. He slowed down to point out the border of a restricted zone that existed before the Soviet Army left in 1994. When Moscow was in control, Paldiski was emptied of its population, turned into a nuclear training center and surrounded by barbed wire.The facility was met with shrugs when it was first proposed over a decade ago. Now construction is on a frenzied pace.Marta Giaccone for The New York TimesAs he drove on, Mr. Haal recalled the debate over building an L.N.G. receiving station: “Everybody we talked to said, ‘Why do we need diversification?’” After all, gas had been reliably arriving through Russian pipelines since the 1950s.Today the brothers are looking more like visionaries. “If at the time, they would have listened to us, we wouldn’t have to run like crazy now to solve the problem,” Mr. Haal said.Mr. Haal, who spent that morning competing in a regatta, always had an entrepreneurial streak — even under Communism. In 1989, as the Soviet Union was dissolving, he and his brother started building and selling car trailers. Mr. Haal said he would drag one on board the ferry to Finland — the fare to bring it by car was too expensive — and deliver it to a buyer at the Helsinki port. He collected the cash and then returned to pay everyone’s salary.When they started selling gas, they named the company Alexela — a palindrome — so that they would have to erect only one sign that could be read by drivers in both directions.Their L.N.G. venture at one point looked like a failure. As it turns out, the millions of dollars and years of frustration meant that when Estonia and Finland agreed in April to share the cost of renting an L.N.G. processing vessel and build floating terminals, the preliminary research and development was already done.In the months leading up to Russia’s invasion, Mr. Haal said, soaring gas prices had already begun to change the economics of investing in an L.N.G. terminal. Now, his major concern is ensuring that the Estonian government completes the pipeline connection to the national gas network on time.Over the years, the question of building more L.N.G. facilities — in addition to the two dozen or so already in Europe — has been repeatedly debated in ports and capitals. Opponents argued that shipping the chilled, liquefied natural gas was much more expensive than the flow from Russia. The required new infrastructure of port terminals and pipes aroused local opposition. And there was resistance to investing so much money in a fossil fuel that climate agreements had eventually targeted for extinction.One of the countries saying no was Europe’s largest economy, Germany, which was getting 55 percent of its gas from Russia.“The general overview was that Europe had more L.N.G. capacity than it needs,” said Nina Howell, a partner at the law firm King and Spalding. After the invasion, projects that had not been considered commercially viable, “and probably wouldn’t have made it, then suddenly got government support.”The first layer of reinforced concrete structure.Marta Giaccone for The New York TimesConcrete line pressure pipes.Marta Giaccone for The New York TimesEstonia, which shares a 183-mile border with Russia, is actually the European country least dependent on its gas. Roughly three-quarters of Estonia’s energy supply comes from domestically produced oil shale, giving it more independence but putting it behind on climate goals.Still, like the other former Soviet republics Lithuania and Latvia, as well as former Communist bloc countries like Poland, Estonia was always more wary of Russia’s power plays.Two days before the war started, the Estonian prime minister chided “countries which don’t border Russia” for not thinking through the risks of depending on Russian energy.By contrast, Poland moved to quit itself of Russian natural gas and began work in 2013 on a pipeline that will deliver supplies from Norway. It is scheduled to be completed in October. Lithuania — which at one point had received 100 percent of its supply through a single pipeline from the Russian monopoly Gazprom — went ahead and completed its own small L.N.G. terminal in 2014, the year that Russia annexed Crimea.Liquefied natural gas terminals are not the only energy source that European countries once disdained and are now compelled to explore. In a hotly disputed decision, the European Parliament last month reclassified some gas and nuclear power as “green.” The Netherlands is re-examining fracking. And Germany is refiring coal plants and even rethinking its determined rejection of nuclear energy.In Paldiski, enormous wind turbines are along the coast of the Pakri peninsula. On this day, gusts were strong enough not only to spin the blades but also to halt work on the floating terminal. A giant tracked excavator was parked on the sand. At the end of a long skeletal pier, the tops of 200-foot-long steel pipes that had been slammed into the seabed poked up through the water like a skyline of rust-colored chimney stacks.Paldiski Bay, which is ice-free year-round and has direct access to the Baltic Sea, has always been an important commercial and strategic gateway. Generations before the Soviets parked their nuclear submarines there; the Russian czar Peter the Great built a military fortress and port there in the 18th century.Now, the bay is again playing a similar role — only this time not for Russia.Remains of a Soviet-era bunker. The region that will boost the energy security of the Baltics was used as a nuclear training site when Moscow was in charge.Marta Giaccone for The New York Times More

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    G7 Nations Pledge $20 Billion to Ukraine

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    KÖNIGSWINTER, Germany — The Group of 7 economic powers agreed on Friday to provide nearly $20 billion to support Ukraine’s economy over the coming months to help keep the country’s government running while it fights to repel a Russian invasion.In a joint statement after two days of meetings, finance ministers from the Group of 7 affirmed their commitment to help Ukraine with a mix of grants and loans. Ukraine needs approximately $5 billion per month to maintain basic government services, according to the International Monetary Fund.The $19.8 billion of financing was agreed on after the United States, which is contributing more than $9 billion in short-term financing, pressed its allies to do more to help secure Ukraine’s future. The statement did not break down how much the other Group of 7 nations will contribute.The European Commission, however, previously agreed to provide up to 9 billion euros of financial assistance. The European Bank for Reconstruction and Development and the International Finance Corporation plan to provide an additional $3.4 billion to Ukrainian state-owned enterprises and the private sector.“We will continue to stand by Ukraine throughout this war and beyond and are prepared to do more as needed,” the statement said.The economic policymakers also acknowledged that more fallout from the war lies ahead, and they pledged on Friday to keep markets open as they combat rising food and energy prices around the world. They also said that their central banks would be closely monitoring inflation measures and the impact that rising prices are having on their economies.“We are very concerned about crises and macroeconomic developments,” Christian Lindner, Germany’s finance minister, said during a closing news conference on Friday, according to an English translation.The two-day summit on the outskirts of Bonn came at a pivotal time for the world economy, with concern mounting that a combination of war, supply chain problems and the lingering effects of the pandemic could lead to a contraction in global output. Finance ministers discussed ways to keep pressure on Russia while minimizing the damage to their economies as they debated the merits of a European embargo on Russian oil and whether seized Russian assets could be used to pay for Ukraine’s reconstruction.“The values of the international community have been totally discarded by Russia,” Mr. Lindner said.Officials from the world’s leading advanced economies discussed other areas for possible collaboration, such as combating climate change and making progress on a global tax agreement that was reached last year but faces implementation problems.But the complicated mix of foreign policy challenges and economic headwinds dominated the meetings.Treasury Secretary Janet L. Yellen warned this week that Europe could be vulnerable to a recession because of its exposure to Russian energy. She does not expect a recession in the United States but said on Thursday that a “soft landing” was not guaranteed as the Federal Reserve raises interest rates to tame inflation.“I think it’s conceivable there could be a soft landing, that requires both skill and luck,” Ms. Yellen told reporters on the sidelines of the Group of 7 summit. “It’s a very difficult economic situation.” More

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    Amid Sanctions, Putin Reminds the World of His Own Economic Weapons

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    The Russian leader has stabilized the ruble and kept Europe’s leaders guessing by threatening to cut off energy. But he has left the country financially isolated.LONDON — In the five weeks since Russia invaded Ukraine, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir V. Putin’s inner circle, have been sanctioned and relegated to a financial limbo.But Mr. Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the invasion.And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Mr. Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.It was that dependency that caused the United States and Europe to exempt fuel purchases from the stringent sanctions they imposed on Russia at the start of the war. The European Union gets 40 percent of its gas and a quarter of its oil from Russia. A cutoff from one day to the next, Chancellor Olaf Scholz of Germany warned this past week, would plunge “our country and the whole of Europe into a recession.”President Vladimir V. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble.Pool photo by Mikhail KlimentyevFor the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Mr. Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing, with Berlin starting the “early warning” phase of planning for a natural gas emergency.Although President Biden has announced plans to release 180 million barrels of oil from the U.S. reserve supply over the next six months and diverted more liquefied natural gas to Europe, that still would not be enough to replace all of what Russia supplies. Russian oil exports normally represent more than one of every 10 barrels the world consumes.Europe’s ongoing energy purchases send as much as $850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its war efforts and blunts the impact of sanctions. Because of soaring energy prices, gas export revenues from Gazprom, the Russian energy giant, injected $9.3 billion into the country’s economy in March alone, according an estimate by Oxford Economics, a global advisory firm.“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.Mr. Putin’s feints and jabs — at one point this past week he promised to stop and continue gas deliveries in the same statement — have also kept European leaders off-balance as they try to divine his strategy and motivations.The war has prompted democracies to move away from relying on Russian exports. They’ve proposed cutting natural gas deliveries by two-thirds before next winter and to end them altogether by 2027. Those goals may be overly ambitious, experts say.In any case, the transition to other suppliers and eventually to more renewable energy sources will be expensive and painful. On the whole, Europeans may be poorer and colder at least for a few years because of spiraling prices and dampened economic activity caused by energy shortages.And unlike in Russia, governments in these countries have to answer to voters.“Putin has already demonstrated he’s willing to sacrifice civilians — his and Ukrainians — to score a win,” said Meg Jacobs, a historian at Princeton University. For European democracies, turning down thermostats, reducing speed limits and driving less is a choice, she said. “It only works with mass cooperation.”A liquefied natural gas facility in Italy. President Biden has diverted more gas to Europe, but that will still not be enough to replace what Russia supplies.Clara Vannucci for The New York TimesBut leverage, like gas, is a limited resource. And Mr. Putin’s willingness to use it now means that he will have less of it in the future. It will not be an easy transition for Russia either. Most analysts believe that Europe’s aggressive moves to reduce its reliance on Russian energy will have far-reaching consequences, however.“They are done with Russian gas,” David L. Goldwyn, who served as a State Department special envoy on energy in the Obama administration, said of Europe. “I think even if this war would end, and even if you had a new government in Russia, I think there’s no going back.”The European Commission president, Ursula von der Leyen, said as much when she announced the new energy plan last month: “We simply cannot rely on a supplier who explicitly threatens us.”Security concerns aren’t the only development that has undermined Russia’s standing as a long-term energy supplier. What seemed surprising to economists, lawyers and policymakers about Mr. Putin’s demand to be paid in rubles was that it would have violated sacrosanct negotiated contracts and revealed Russia’s willingness to be an unreliable business partner.As he has tried to wield his energy clout externally, Mr. Putin has taken steps to insulate Russia’s economy from the impact of sanctions and to prop up the ruble. Few things can undermine a country as systemically as an abruptly weakened currency.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Will War Make Europe’s Switch to Clean Energy Even Harder?

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    At the Siemens Gamesa factory in Aalborg, Denmark, where the next generation of offshore wind turbines is being built, workers are on their hands and knees inside a shallow, canoe-shaped pod that stretches the length of a football field. It is a mold used to produce one half of a single propeller blade. Guided by laser markings, the crew is lining the sides with panels of balsa wood.The gargantuan blades offer a glimpse of the energy future that Europe is racing toward with sudden urgency. The invasion of Ukraine by Russia — the European Union’s largest supplier of natural gas and oil — has spurred governments to accelerate plans to reduce their dependence on climate-changing fossil fuels. Armed conflict has prompted policymaking pledges that the more distant threat of an uninhabitable planet has not.Smoothly managing Europe’s energy switch was always going to be difficult. Now, as economies stagger back from the second year of the pandemic, Russia’s attack on Ukraine grinds on and energy prices soar, the painful trade-offs have crystallized like never before.Moving investments away from oil, gas and coal to sustainable sources like wind and solar, limiting and taxing carbon emissions, and building a new energy infrastructure to transmit electricity are crucial to weaning Europe off fossil fuels. But they are all likely to raise costs during the transition, an extremely difficult pill for the public and politicians to swallow.The crisis that has inspired Europe to more quickly reach toward clean energy sources like wind and solar also risks pitching it backward by unwinding efforts to shut coal mines and stop drilling new oil and gas wells to replace Russian fuel and bring prices down.Workers at Siemens Gamesa preparing a mold used to produce one half of a single propeller blade.Carsten Snejbjerg for The New York TimesIn Germany, Europe’s largest economy, leaders are planning to have several coal-fired power plants that were recently taken off the grid placed in reserve, so that they could be quickly fired up if needed. After years of dithering about investing so much in the natural gas infrastructure, Germany is also accelerating plans to build its own terminals for receiving liquefied natural gas, another fossil fuel.“Security of our energy supply stands above everything else at the moment,” said Robert Habeck, the country’s economy minister and a Green party leader in the coalition government.Local officials are taking similar steps. Last week, the Munich government decided to extend the life of one of the city’s coal-fired power plants, scrapping plans to convert it to burn natural gas in spring 2023.And that’s in a country that has helped spearhead Europe’s efforts to shift to renewable energy.In Poland, which gets 70 percent of its energy from coal and has been at loggerheads with the European Union over the climate agenda, the sudden energy shortage is being used by critics as evidence that the push to shut mines was a mistake.A power plant in Poland run by CEZ Group, a Czech conglomerate of companies in the energy sector.Maciek Nabrdalik for The New York TimesDominik Kolorz, head of the Silesian region of Solidarity Trade Union, said through a translator that “the so-called E.U. climate policy” was leading to a “huge economic crisis” and “total energy dependence on the Russian Federation.”In many ways, Europe has been a leading laboratory for the decades-long transition. It started establishing taxes on carbon emissions more than 20 years ago. The European Union pioneered an emissions trading system, which capped the amount of greenhouse gases companies produced and created a marketplace where licenses for those emissions could be bought and sold. Polluting industries like steel were gradually pushed to clean up. Last year, members proposed a carbon tax on imports from carbon-producing sectors like steel and cement.And it has led the way in generating wind power, especially from ocean-based turbines. Siemens Gamesa Renewable Energy, for example, has been instrumental in planting rows of colossal whirligigs at sea that can generate enough green energy to light up cities.Europe, too, is on the verge of investing billions in hydrogen, potentially the multipurpose clean fuel of the future, which might be generated by wind turbines.At Siemens Gamesa in Brande, a prototype for an even larger wind turbine.Carsten Snejbjerg for The New York TimesWind turbines can potentially generate enough green energy to light up cities.Carsten Snejbjerg for The New York TimesSuch exhilarating innovation, though, sits next to despair-inducing obstacles.Even before the invasion of Ukraine, a tight natural gas market, exacerbated by Russia’s restraining of supplies, had pushed gas and electricity prices to record levels, leading to shutdowns of fertilizer plants and other factories because of high costs. Household energy bills are set to rise by about 50 percent in Britain and drivers across Europe faced shock at the pump.European countries, most notably Germany, had mapped out strategies that relied on increasing dependence on Russian gas and oil in the medium term. That is no longer an option.After the invasion, Olaf Scholz, the chancellor of Germany, halted approval of Nord Stream 2, an $11 billion gas pipeline under the Baltic Sea that directly links Russia to northeastern Germany.As Ursula von der Leyen, the European Commission president, said when she announced a plan on March 8 to make Europe independent of Russian fossil fuels: “We simply cannot rely on a supplier who explicitly threatens us.” The proposal calls for member nations to reduce Russian natural gas imports by two-thirds by next winter and to end them altogether by 2027 — a very tall order.This week, European Union leaders are again meeting to discuss the next phase of proposals, but deep divisions remain over how to manage the current price increases amid anxieties that Europe could face a double whammy of inflation and recession.On Monday, United Nations Secretary General António Guterres warned that intense focus on quickly replacing Russian oil could mean that major economies “neglect or kneecap policies to cut fossil fuel use.”A hydrogen test station near the Siemens Gamesa design center. Hydrogen produced with wind power could be a multipurpose clean fuel of the future.Carsten Snejbjerg for The New York TimesThere are other technological, financial, regulatory and political hurdles. The ability to cheaply generate, transport and store a clean replacement fuel like hydrogen to power trucks, cars and airplanes remains years away.And there is the need to find a better business model.Siemens Gamesa is the world’s leading maker of offshore wind turbines, a key vehicle for achieving climate targets. The company is also working on a giant turbine that would be dedicated solely to producing green hydrogen.Yet, at the company’s offshore design center in Brande, a two-hour drive from Aalborg, the conversations focus on worries as much as bright prospects. The company just replaced its chief executive because of poor financial performance.Industry executives say that despite the huge climate ambitions of many countries, Siemens Gamesa and its competitors are struggling to make a profit and keep the orders coming in fast enough to finance their factories. It doesn’t help that building plants is often a condition for breaking into new markets like the United States, where Siemens Gamesa agreed to erect a facility in Virginia.Morten Pilgaard Rasmussen of Siemens Gamesa says companies like his struggle to get projects approved swiftly.Carsten Snejbjerg for The New York TimesMorten Pilgaard Rasmussen, chief technology officer of the offshore wind unit at Siemens Gamesa, said that companies like his “are now forced to do investments based on the prosperous future that we are all waiting for.”The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More