The upheaval in the European energy market caused by Russia’s invasion of Ukraine and subsequent sanctions, plus decisions by countries in the EU to stop imports of coal and gas from Russia, may have far-reaching implications for energy transitions in developing economies.
The longer the conflict continues the more likely it becomes that countries in the EU that rely on gas and coal imports from Russia for their own energy supply will speed up their investment in renewable energy resources to limit their reliance on Russia. This was according to Roland Henwood, a lecturer in the department of political sciences at the University of Pretoria.
However, this move to renewables will require a reprioritising of resources which could result in SA losing out on funding from the EU to finance its own energy transition.
During a webinar hosted by Absa on how the war in Ukraine may affect global trade, energy, commodity markets and agriculture, Henwood said that “green funds” from Europe that SA was hoping to benefit from might not materialise as expected “because European countries will now look at how they need to help themselves first”.
SA concluded a landmark climate finance agreement at the COP26 climate change conference in Glasgow, Scotland, in November with the governments of France, Germany, the UK and the US, as well as the EU, that would mobilise $8.5bn to support SA’s “just transition”.
The funding was to be made available over a period of three to five years through a range of instruments, including grants and concessional finance. During a meeting of the Presidential Climate Commission in February, public enterprises minister Pravin Gordhan, citing recent experiences with Covid-19 and vaccine access, expressed some reservations about the deal. He said that it remained to be seen if SA’s partners would stick to their word and whether it would ultimately “be worth taking”.
The longer-term consequences of the war in Ukraine might be that European governments would look at funding quicker energy transitions for themselves, said Henwood. This, he said, might create a new divide between countries that were able to afford faster transitions to renewable energy and those countries that had to wait and rely on funding from richer countries to do so.
This could have consequences for SA’s plans to gradually move away from using coal to generate electricity towards renewable sources given the “expectation of funding” from countries in the EU to fund this move.
“Countries like the UK, France, Germany and Italy will now be looking at their domestic environment first, instead of focusing on how they can help the rest of the world solve their problems.”
Another outcome of the war could be a further slowdown in globalisation. Global trade was already being hampered by logistical challenges that arose during the height of the Covid-19 pandemic due to restrictions that were placed on trade and the movement of goods and people.
Absa Agribusiness senior economist Marlene Louw said: “The war [in Ukraine] is resulting in further disruption to supply chains and global logistics. There are reports that shipping times have been increased [at European ports] because containers have to be screened for [products affected by] sanctions.”
This would provide further impetus for countries to become more “inward looking” and to focus on sustainable supply sources that would not be disrupted by geopolitical events, she said.
“The benefits we saw from globalisation from during the 1990s and early 2000s will lose momentum given the dynamics that are at play now. Anyone who is involved in global trade will find it harder to do business.”
For SA this would mean that the agriculture sector, for example, may find it more difficult to secure access to new markets as other countries.
Louw said this should result in SA gaining an opportunity to increase trade with other Southern African countries.
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