Of all the potential implications of blockchain for the energy sector, the energy use of cryptocurrencies – and bitcoin in particular – has captured the most interest.
As the price of bitcoin skyrocketed in 2017, attention turned to the cryptocurrency’s energy and environmental footprint. High-profile news articles reported that electricity use of the bitcoin network had equalled that of medium-sized countries and was on track to consume as much electricity as the United States in 2019 and all of the world’s energy by 2020. A widely reported article in Nature Climate Change warned that Bitcoin emissions alone could push global warming above 2°C.
In this commentary, we explain why and how bitcoin uses energy; dig into published estimates of bitcoin energy use and provide our own analysis; and discuss how these trends might evolve in the coming years.
Why does bitcoin use energy?
In order to understand why and how bitcoin uses energy, we first need to understand its underlying technology: blockchain. Blockchain offers a new way to conduct and record transactions, like sending money. In a traditional exchange, central authorities (e.g. banks) verify and log transactions. Blockchain removes the need for a central authority and ledger; instead, the ledger is held, shared, and validated across a distributed network of computers running a particular blockchain software.
The lack of a centralised, trusted authority means that blockchain needs a “consensus mechanism” to ensure trust across the network. In the case of bitcoin, consensus is achieved by a method called “Proof-of-Work” (PoW), where computers on the network – “miners” – compete with each other to solve a complex math puzzle. Each guess a miner makes at the solution is known as a “hash,” while the number of guesses taken by the miner each second is known as its “hashrate.” Once the puzzle is solved, the latest “block” of transactions is approved and added to the “chain” of transactions. The first miner to solve the puzzle is rewarded with new bitcoins and network transaction fees. The energy use of the bitcoin network is therefore both a security feature and a side effect of relying on the ever-increasing computing power of competing miners to validate transactions through PoW.
How does bitcoin use energy?
The energy use of the bitcoin network is a function of a few inter-related factors (some of which respond to the changing price of bitcoin):
- mining hardware specifications, notably power consumption and hashrate;
- network hashrate, the combined rate at which all miners on the network are simultaneously guessing solutions to the puzzle;
- “difficulty” of solving the puzzle, which is adjusted in response to the network hashrate to maintain the target block rate of one block every 10 minutes; and
- energy consumption by non-IT infrastructure, such as cooling and lighting.
The rising price of bitcoin, particularly as it rose to all-time highs in December 2017, drove huge increases in hashrate and difficulty, and the development and deployment of more powerful and energy efficient mining hardware.
The IT infrastructure for bitcoin and other cryptocurrencies has evolved rapidly over the past decade. In the early days of bitcoin (2009), hobbyists used standard central processing units (CPUs) to mine bitcoin. By October 2010, miners started to use more powerful graphics processing units (GPUs) as mining difficulty increased. By June 2011, miners – increasingly large and more industrial operations – used more powerful (but less energy-efficient) field-programmable gate array (FPGA) hardware, and a year later, moved to application-specific integrated circuits (ASICs).
ASICs are purpose-built chips, in this case, to mine bitcoin. The latest ASICs are both more powerful and more energy efficient – around 50 million times faster (H/s) and a million times more energy efficient (H/J) in mining bitcoin than the CPUs used in 2009.
How much energy is bitcoin using today?
Diverse methodologies, limited data availability, and highly variable conditions across the industry (e.g. mining hardware used; electricity costs; cooling needs) make estimating bitcoin energy use extremely challenging (Koomey, 2019). Therefore, all estimates must be interpreted with caution.
Recent published estimates of bitcoin’s electricity consumption are wide-ranging, on the order of 20‑80 TWh annually, or about 0.1-0.3% of global electricity use (Bendiksen & Gibbons, 2018; Bendiksen & Gibbons, 2019; Bendiksen, Gibbons & Lim, 2018; Bevand, 2018; BNEF, 2018; De Vries, 2018; Digiconomist, 2019; Krause & Tolaymat, 2018; Morgan Stanley, 2018; Rauchs et al., 2018; Stoll et al., 2019; Vranken, 2017).
These figures can appear large when compared to countries like Ireland (26 TWh) or emerging technologies like electric vehicles (58 TWh in 2018), but small when compared to other end-uses like cooling (2 020 TWh in 2016). Nonetheless, bitcoin mining is a highly mobile industry, allowing it to migrate quickly to areas with cheap electricity. Localised hotspots and electricity supply issues can emerge quickly, generating strong backlash from regulators and the public.
Bitcoin has also been compared on a per-transaction basis to VISA payments, the broader banking system, and gold mining. However, comparisons on a per-transaction basis are not meaningful in the context of PoW blockchains, particularly because the energy required for the networks to function is independent of the number of processed transactions. A recent peer-reviewed article compared the energy intensity of mining bitcoin (17 MJ/USD) to the mining of other metals like aluminium (122 MJ/USD) and gold (5 MJ/USD).
By far, the most frequently cited estimate in news media is the Bitcoin Energy Consumption Index (BECI), which uses a top-down approach that assumes miners spend (on average) 60% of their revenues on electricity at a rate of 0.05 USD/kWh. These key assumptions have been criticised to overestimate electricity consumption; indeed, BECI estimates represent the high range of published estimates to date.
Bendiksen, Gibbons (2018; 2019) & Lim (2018) also use a top-down approach, but undertake significant data collection efforts on existing mining hardware and mining locations to inform their assumptions and analysis. They also conduct sensitivity analyses around key uncertainties, including electricity costs and capital depreciation schedules. Under their central assumptions, they estimate that the bitcoin network consumes between 35 TWh (May 2018) and 41 TWh (November 2018; June 2019) per year.
Other researchers have calculated lower-bound estimates using a bottom-up approach (e.g. Deetman, 2016; Morgan Stanley, 2018; Valfells & Egilsson, 2016). This approach assumes that all miners are using the most efficient mining hardware to achieve the network’s hashrates (TH/s). The Bitmain Antminer S9 series (0.1 J/GH), used by two-thirds of miners worldwide, is typically used as a benchmark.
Using this approach, we can estimate that thebitcoin network (excluding cooling) consumed 31 TWh in 2018. Based on data collected from mining facilities in China, cooling and other ancillary demands accounts for 30% of electricity use overall, thereby adding another 42% to the lower-bound estimate. Therefore, we estimate that bitcoin mining consumed around 45 TWh in 2018, which aligns well with the latest peer-reviewed estimate of 45.8 TWh as of November 2018 (Stoll et al., 2019).
With the recent run up in price and hashrate, energy consumption is expected to be much higher in 2019. Through the first six months of 2019, bitcoin mining has already consumed an estimated 29 TWh.
While these early estimates provide a rough indication of bitcoin energy use today, it is clear that researchers need more data, in particular from mining facilities, to develop more rigorous methodologies and accurate estimates.
Bitcoin and climate change
Headlines concerning the environmental impacts of bitcoin re-emerged last October, when a commentary article from Mora et al. in Nature Climate Change concluded that “…projected Bitcoin usage, should it follow the rate of adoption of other broadly adopted technologies, could alone produce enough CO2 emissions to push warming above 2°C within less than three decades”.
A closer look reveals serious issues in the study’s methodology and assumptions, notably around bitcoin adoption rates, the efficiency of mining hardware, and the assumed electricity mix (Masanet et al., 2019, Nature Climate Change, In Press). Crucially, the use of country average (and in some cases, world average) emissions factors inflates the GHG estimates, since bitcoin mines are typically concentrated in renewables-rich states and provinces.
Indeed, the selection of mining locations depend on a balance of several key factors, including access to low-cost electricity, fast internet connections, cool climates, and favourable regulatory environments. For these reasons, China, Iceland, Sweden, Norway, Georgia, the Pacific North West (Washington State, British Columbia, Oregon), Quebec, and upstate New York are key bitcoin mining centres.
Around 60% to 70% of bitcoin is currently mined in China, where more than two-thirds of electricity generation comes from coal. But bitcoin mining facilities are concentrated in remote areas of China with rich hydro or wind resources (cheap electricity), with about 80% of Chinese bitcoin mining occurring in hydro-rich Sichuan province. These mining facilities may be absorbing overcapacity in some of these regions, using renewable energy that would otherwise be unused, given difficulties in matching these rich wind and hydro resources with demand centres on the coast.
Electricity generation in other key bitcoin mining centres are also dominated by renewables, including Iceland (100%), Quebec (99.8%), British Columbia (98.4%), Norway (98%), and Georgia (81%). Globally, one analysis estimates that the bitcoin is powered by at least 74% renewable electricity as of June 2019. Another analysis of data from 93 mining facilities (representing 1.7 GW, or about a third of global mining capacity) estimates that 76% of the identified energy mix includes renewables.
Based on these analyses and data from IPO filings of hardware manufacturers and insights on mining facility operations and pool compositions, bitcoin mining is likely responsible for 10‑20 Mt CO2 per year, or 0.03-0.06% of global energy-related CO2 emissions.
Outlook for bitcoin energy use and emissions
Apocalyptic headlines that bitcoin would consume all of the world’s energy by 2020 echo back to warnings from the late 1990s about the internet and its growing appetite for energy, including one Forbes article in 1999 that predicted that “[…]half of the electric grid will be powering the digital-Internet economy within the next decade”.
Since then, researchers have collected real-world data and developed and refined methodologies to establish rigorous estimates of the energy use of data centres and the global ICT sector, including by the IEA. The dire predictions about the energy use of the internet failed to materialise despite exponential growth in internet services, largely because of rapid improvements in the energy efficiency of computing and data transmission networks.
The outlook for bitcoin energy use is highly uncertain, hinging on efficiency improvements in hardware, bitcoin price trends, and regulatory restrictions on bitcoin mining or use in key markets. Bitcoin prices in particular are extremely volatile: between December 2017 and 2018, its value fell by 80%, but has nearly tripled since.
It is important to recognise that bitcoin is just one cryptocurrency, which is one application of blockchain, which is itself one example of distributed ledger technology (DLT). Ethereum (ETH), the second largest cryptocurrency by market value, processes more than twice as many transactions as the bitcoin network while using only about one-third of the electricity consumed by bitcoin. ETH also operates on a Proof-of-Work (PoW) consensus mechanism, but its founder has announced plans to move to Proof-of-Stake (PoS) in an effort to reduce its energy intensity. PoS and Proof‑of‑Authority (PoA) could help reduce energy use while also addressing scalability and latency issues. Other DLTs like Tangle and Hashgraph similarly offer the promise of lower energy use, scalability, faster transactions, and no transaction fees compared to blockchain.
Over the coming years, other applications of blockchain – including those within the energy sector – are likely to garner more attention. As the scope and scale of blockchain applications increases, these trends combined are likely to materially reduce the future energy footprint of its technology.
Sensational predictions about bitcoin consuming the entire world’s electricity – and, by itself, leading our world to beyond 2°C – would appear just that…sensational. That said, this is a very dynamic area that certainly requires careful monitoring and rigorous analysis – particularly, a careful monitoring of local hotspots.
The energy use of bitcoin and blockchain is just part of the blockchain and energy story. In our next commentary, we’ll look at how blockchain is already impacting the energy sector, dive into some of the most promising applications, and explore the technological, regulatory or market design challenges that await.
A Hydrogen Strategy for a climate neutral Europe
Hydrogen can be used as a feedstock, a fuel or an energy carrier and storage, and has many possible applications across industry, transport, power and buildings sectors. Most importantly, it does not emit CO2 and does not pollute the air when used. It is therefore an important part of the solution to meet the 2050 climate neutrality goal of the European Green Deal.
It can help to decarbonise industrial processes and economic sectors where reducing carbon emissions is both urgent and hard to achieve. Today, the amount of hydrogen used in the EU remains limited, and it is largely produced from fossil fuels. The aim of the strategy is to decarbonise hydrogen production – made possible by the rapid decline in the cost of renewable energy and acceleration of technology developments – and to expand its use in sectors where it can replace fossil fuels.
How is hydrogen produced and what is its impact on the climate?
Hydrogen may be produced through a variety of processes. These production pathways are associated with a wide range of emissions, depending on the technology and energy source used and have different costs implications and material requirements. In this Communication:
- ‘Electricity-based hydrogen’ refers to hydrogen produced through the electrolysis of water (in an electrolyser, powered by electricity), regardless of the electricity source. The full life-cycle greenhouse gas emissions of the production of electricity-based hydrogen depends on how the electricity is produced.
- ‘Renewable hydrogen’ is hydrogen produced through the electrolysis of water (in an electrolyser, powered by electricity), and with the electricity stemming from renewable sources. The full life-cycle greenhouse gas emissions of the production of renewable hydrogen are close to zero. Renewable hydrogen may also be produced through the reforming of biogas (instead of natural gas) or biochemical conversion of biomass, if in compliance with sustainability requirements.
- Clean hydrogen refers to renewable hydrogen
- ‘Fossil-based hydrogen’ refers to hydrogen produced through a variety of processes using fossil fuels as feedstock, mainly the reforming of natural gas or the gasification of coal. This represents the bulk of hydrogen produced today. The life-cycle greenhouse gas emissions of the production of fossil-based hydrogen are high.
- ‘Fossil-based hydrogen with carbon capture’ is a subpart of fossil-based hydrogen, but where greenhouse gases emitted as part of the hydrogen production process are captured. The greenhouse gas emissions of the production of fossil-based hydrogen with carbon capture or pyrolysis are lower than for fossil-fuel based hydrogen, but the variable effectiveness of greenhouse gas capture (maximum 90%) needs to be taken into account.
- ‘Low-carbon hydrogen’ encompasses fossil-based hydrogen with carbon capture and electricity-based hydrogen, with significantly reduced full life-cycle greenhouse gas emissions compared to existing hydrogen production.
- Hydrogen-derived synthetic fuels refer to a variety of gaseous and liquid fuels on the basis of hydrogen and carbon. For synthetic fuels to be considered renewable, the hydrogen part of the syngas should be renewable. Synthetic fuels include for instance synthetic kerosene in aviation, synthetic diesel for cars, and various molecules used in the production of chemicals and fertilisers. Synthetic fuels can be associated with very different levels of greenhouse gas emissions depending on the feedstock and process used. In terms of air pollution, burning synthetic fuels produces similar levels of air pollutant emissions than fossil fuels.
What kind of hydrogen will the strategy support?
Renewable hydrogen is the focus of the strategy, as it has the biggest decarbonisation potential and is therefore the most compatible option with the EU’s climate neutrality goal.
The strategy also recognises the role of other low-carbon hydrogen production processes in a transition phase, for example through the use of carbon capture and storage or other forms of low-carbon electricity, to clean existing hydrogen production, reduce emissions in the short term and scale up the market.
The differentiation between types of hydrogen will allow to tailor supportive policy frameworks in function of the carbon emissions reduction benefits of hydrogen based on benchmarks and certification.
How quickly can we roll out this promising technology?
The strategy foresees a gradual trajectory, with three phases of development of the clean hydrogen economy, at different speed across different industry sectors:
- In In the first phase (2020-24) the objective is to decarbonise existing hydrogen production for current uses such as the chemical sector, and promote it for new applications. This phase relies on the installation of at least 6 Gigawatt of renewable hydrogen electrolysers in the EU by 2024 and aims at producing up to one million tonne of renewable hydrogen. In comparison to the current situation, approximately 1 Gigawatt of electrolysers are installed in the EU today.
- In the second phase (2024-30) hydrogen needs to become an intrinsic part of an integrated energy system with a strategic objective to install at least 40 Gigawatt of renewable hydrogen electrolysers by 2030 and the production of up to ten million tonnes of renewable hydrogen in the EU. Hydrogen use will gradually be expanded to new sectors including steel-making, trucks, rail and some maritime transport applications. It will still mainly be produced close to the user or close the renewable energy sources, in local ecosystems.
- In a third phase, from 2030 onwards and towards 2050, renewable hydrogen technologies should reach maturity and be deployed at large scale to reach all hard-to-decarbonise sectors where other alternatives might not be feasible or have higher costs.
How does hydrogen support the European Green Deal?
Alongside renewable electrification and a more efficient and circular use of resources – as set out in the Energy Sector Integration Strategy – large-scale deployment of clean hydrogen at a fast pace is key for the EU to achieve its high climate ambitions. It is the missing part in the puzzle to a fully decarbonised economy.
Hydrogen can support the transition towards an energy system relying on renewable energy by balancing variable renewable energy. It offers a solution to decarbonise heavily-emitting industry sectors relying on fossil fuels, where conversion to electricity is not an option. And it emits no CO2 and almost no air pollution.
How can hydrogen support the recovery, growth and jobs?
Investment in hydrogen will be a growth engine which will be critical in the context of recovery from the COVID-19 crisis. The Commission’s recovery plan highlights the need to unlock investment in key clean technologies and value chains, to foster sustainable growth and jobs. It stresses clean hydrogen as one of the essential areas to address in the context of the energy transition, and mentions a number of possible avenues to support it.
Moreover, Europe is highly competitive in clean hydrogen technologies manufacturing and is well positioned to benefit from a global development of clean hydrogen as an energy carrier. Cumulative investments in renewable hydrogen in Europe could be up to €180-470 billion by 2050, and in the range of €3-18 billion for low-carbon fossil-based hydrogen. Combined with EU’s leadership in renewables technologies, the emergence of a hydrogen value chain serving a multitude of industrial sectors and other end uses could employ up to 1 million people, directly and indirectly. Analysts estimate that clean hydrogen could meet 24% of world energy demand by 2050, with annual sales in the range of €630 billion.
Is renewable hydrogen cost-competitive?
Today, neither renewable hydrogen nor fossil-based hydrogen with carbon capture are cost-competitive against fossil-based hydrogen. Current estimated costs for fossil-based hydrogen are around 1.5 €/kg for the EU, highly dependent on natural gas prices, and disregarding the cost of CO2. Estimated costs for fossil-based hydrogen with carbon capture and storage are around 2 €/kg, and renewable hydrogen 2.5-5.5 €/kg.
That said, costs for renewable hydrogen are going down quickly. Electrolyser costs have already been reduced by 60% in the last ten years, and are expected to halve in 2030 compared to today with economies of scale. In regions where renewable electricity is cheap, electrolysers are expected to be able to compete with fossil-based hydrogen in 2030. These elements will be key drivers of the progressive development of hydrogen across the EU economy.
How will the strategy support investments in the hydrogen economy?
The strategy outlines a comprehensive investment agenda, including investments for electrolysers, but also for the renewable power production capacity required to produce the clean hydrogen, transport and storage, retrofitting of existing gas infrastructure, and carbon capture and storage.
To support these investments and the emergence of a whole hydrogen eco-system, the Commission launches the European Clean Hydrogen Alliance – as announced in the Commission’s New Industrial Strategy. The Alliance will play a crucial role in delivering on this Strategy and supporting investments to scale up production and demand. It will bring together the industry, national, regional and local public authorities and the civil society. Through interlinked, sector-based CEO round tables and a policy-makers’ platform, the Alliance will provide a broad forum to coordinate investment by all stakeholders and engage civil society. The key deliverable of the European Clean Hydrogen Alliance will be to identify and build up a clear pipeline of viable investment projects.
What EU financial instruments can be used for investing in hydrogen?
The Commission will also follow up on the recommendations identified in a report by the Strategic Forum for Important Projects of Common European Interest (IPCEI) to promote well-coordinated or joint investments and actions across several Member States aimed at supporting a hydrogen supply chain.
Additionally, as part of the new recovery instrument Next Generation EU, the InvestEU programme will see its capacities more than doubled. It will support the deployment of hydrogen by incentivising private investment, with a strong leverage effect.
A number of Member States have identified renewable and low-carbon hydrogen as a strategic element of their National Energy and Climate Plans. These plans will have to be taken into account when designing the national recovery and resilience plans in the context of new Recovery and Resilience Facility.
Furthermore, the European Regional Development Fund and the Cohesion Fund, which will benefit from a top-up in the context of the new initiative REACT-EU, will continue to be available to support the green transition. The possibilities offered to carbon intensive regions under the Just Transition Mechanism should also be fully explored.
Synergies between the Connecting Europe Facility for Energy and the Connecting Europe Facility for Transport will be harnessed to fund dedicated infrastructure for hydrogen, repurposing of gas networks, carbon capture projects, and hydrogen refuelling stations.
In addition, the EU ETS ETS Innovation Fund, which will pool together around €10 billion to support low-carbon technologies over the period 2020-2030, has the potential to facilitate first-of-a-kind demonstration of innovative hydrogen-based technologies. A first call for proposals under the Fund was launched on 3 July 2020.
The Commission will also provide targeted support to build the necessary capacity for preparation of financially sound and viable hydrogen projects, where this is identified as a priority in the relevant national and regional programmes, through dedicated instruments (e.g. InnovFin Energy Demonstration Projects, InvestEU) possibly in combination with advisory and technical assistance from the Cohesion Policy, from the European Investment Bank Advisory Hubs or under Horizon Europe.
Can the EU be a global leader in clean hydrogen technologies?
The international dimension is an integral part of the EU approach. Clean hydrogen offers new opportunities for re-designing Europe’s energy partnerships with both neighbouring countries and regions and its international, regional and bilateral partners, advancing supply diversification and helping design stable and secure supply chains.
The EU has supported research and innovation on hydrogen for many years, giving it a head start on the development of technologies and high profile projects, and establishing EU leadership for technologies such as electrolysers, hydrogen refuelling stations and large fuel cells. The strategy aims to consolidate EU leadership by ensuring a full supply chain that serves the European economy, but also by developing its international hydrogen agenda.
This includes in particular working closely with partners in the Eastern and Southern Neighbourhood. In this context, the EU should actively promote new opportunities for cooperation on clean hydrogen with neighbouring countries and regions, as a way to contribute to their clean energy transition and foster sustainable growth and development.
The interest in clean hydrogen is growing globally with several other countries developing dedicated research programmes and an international hydrogen market is likely to develop. The EU will globally promote sound common standards and methodologies to ensure that a global hydrogen market contributes to sustainability and achievement of climate goals.
What uses does the Commission foresee for hydrogen?
Hydrogen is a key solution to cut greenhouse gas emissions in sectors that are hard to decarbonise and where electrification is difficult or impossible. This is the case of industrial sectors such as steel production, or heavy-duty transport for example. As a carbon-free energy carrier, hydrogen would also allow for transport of renewable energy over long distances and for storage of large energy volumes.
An immediate application in industry is to reduce and replace the use of carbon-intensive hydrogen in refineries, the production of ammonia, and for new forms of methanol production, or to partially replace fossil fuels in steel making. Hydrogen holds the potential to form the basis for zero-carbon steel making processes in the EU, envisioned under the Commission’s New Industrial Strategy.
In transport, hydrogen is also a promising option where electrification is more difficult. For example in local city buses, commercial fleets or specific parts of the rail network. Heavy-duty vehicles including coaches, special purpose vehicles, and long-haul road freight could also be decarbonised by using hydrogen as a fuel. Hydrogen fuel-cell trains could be extended and hydrogen could be used as a fuel for maritime transport on inland waterways and short-sea shipping.
In the long term, hydrogen can also become an option to decarbonise the aviation and maritime sector, through the production of liquid synthetic kerosene or other synthetic fuels.
Is hydrogen safe?
Hydrogen is a highly flammable gas and care must be taken that hydrogen is produced, stored, transported and utilised in a safe manner. Standards are already in place, and the European industry has built up significant experience with already more than 1500 km of dedicated hydrogen pipelines in place.
With hydrogen consumption expanding to other markets and end-use applications, the strategy points out that the need for safety standards from production, transport and storage to use is critical, include a system to monitor and verify.
What does the strategy foresee in terms of infrastructure development?
Appropriate infrastructure is a condition for the EU-wide development of hydrogen, but the specific infrastructure needs will depend on the patterns of development both in terms of production and use.
Hydrogen demand will largely be met by localised production in an initial phase, for example in industrial clusters or for hydrogen production for refuelling stations. However, local networks and more extensive transport options will be required for further development. Different options will have to be considered, including the repurposing of existing gas infrastructure.
Covid-19 Impact on Africa’s Energy Sectors: Challenges and Opportunities
African ministers representing around two-thirds of the continent’s energy consumption, 60% of GDP and nearly half of its population met with global energy leaders via videoconference on 30 June 2020. As Africa’s energy sector faces the dual impacts of the Covid-19 pandemic and global economic recession, participants agreed that sound government policies and enhanced investment are more important and necessary than ever to enhance the continent’s economic transformation; ensure sufficient, affordable, reliable energy for all citizens; and drive inclusive, just and sustainable, energy transitions.
2020 started as a year of optimism across Africa’s energy sector. But continued energy progress is now uncertain, as Africa – like the rest of the world – faces the wide-ranging impacts of the Covid-19 crisis. The International Monetary Fund expects sub-Saharan Africa to enter into recession for the first time in 25 years as a result of the coronavirus crisis, with growth falling to -3.2% in 2020 from 3.1% in 2019. Many African economies also have limited fiscal capacity and are heavily indebted, undermining their ability to absorb these economic shocks. The energy sector has not been spared.
Electricity – Participants welcomed the good progress made in many African countries in recent years, including accelerating growth in renewable energy and increasing access to electricity, but expressed concern that the Covid-19 pandemic and global economic shocks are testing the resilience of the energy sector in countries across Africa. The Covid-19 crisis has severely impacted progress on energy access and lockdown measures have put off-grid developments at risk and weakened the financial health of decentralized service providers. Confinement policies and the consequent drop in energy demand in some countries is increasing pressure on power systems, calling into further question the financial health of state-owned utilities that were already under financial stress.
Oil and Gas – Participants also noted that the disruption to global oil and gas markets has delivered a sudden and sharp drop in export revenue, increasing fiscal pressures on key producer economies across the continent. As a result, new investments may face delay or cancellation in the post Covid-19 global and energy sector financial environment. Continued uncertainty could create new risks, compounding security and sustainability challenges in the longer term. At the same time, lower oil prices could make access to clean fuels and modern cooking ones more affordable, as liquid petroleum gas prices (LPG) are 40% lower that 2019, but also considerably more volatile. Expansion of LPG services could create new jobs in manufacturing, transport, bottling, distribution as well as retail. Also, the importance of securing the African energy supply through modern and larger storage capacities over the continent was noted.
Sustainable, Inclusive Transitions – Participants also underscored the importance of supporting Africa’s energy transitions. This includes strengthening the enabling environment for investment, both in infrastructure and all relevant technologies, and continuing to prioritise attainment of the Sustainable Development Goals while ensuring just and inclusive outcomes. The importance of strengthening and developing local capacity and capabilities, especially through training, was also largely emphasized by many Ministers. Finally, participants welcomed the IEA sustainable recovery plan to help guide governments – including in Africa — through and beyond the crisis.
Key conclusions – Participants stressed the following top recommendations going forward:
- An efficient secure, affordable and sustainable power sector is vital to Africa’s economic recovery and transformation, and its ability to enhance resiliency to other challenges over time.
- Enhancing investments in new grids, (national and mini-grids) and in the off-grid sector as well as in generation facilities are essential to ensure a resilient and reliable power sector that can drive economic recovery.
- Setting bold energy sector priorities and plans today can enable much-needed investments to stimulate broader economic growth tomorrow, including creating employment opportunities, supporting new skill development, unleashing the creativity of African entrepreneurs across the African continent and creating wealth.
- Africa’s oil and gas exporters, who have been severely impacted by the crisis, can seize the opportunity to re-evaluate their strategies to generate the most value and jobs across their economies and to promote broader economic diversification.
- To secure energy supplies and development in many Africa countries, increase oil storage capacities and product stocks; upgrade refineries to produce higher quality products that are less polluting; and build local capacity and skills through training.
- Low oil prices, in particular liquid petroleum gas (LPG), could open the door to advance clean cooking access; LPG services could also create jobs.
- Maintaining focus on universal access to electricity and modern cooking is essential, especially in Africa; African governments and other partners should continue to work together to ensure progress toward SDG7.
- Enhanced regional and international cooperation can play an important role in helping to build robust, affordable, sustainable and resilient energy systems across the continent.
The outcomes of this ministerial roundtable will be shared with key global decision-makers, governments, international financial institution, business leaders including for the IEA Clean Energy Transitions Summit on 9 July 2020 and AUC-IEA Ministerial Forum in South Africa in November 2020. The outcomes will also help guide and inform the IEA’s increasing efforts in Africa, including helping to inform key decision-makers from governments, companies, investors and organizations.
From Russia with Gas: Dynamics of Nord Stream 2
Nord Stream 2 is one of the latest gas pipeline projects of Russia, which seeks to export gas to Europe through the Baltic Sea. After the successful experience from Nord Stream, European companies agreed to build the second version with the Russian partner Gazprom in 2017. Since then, the pipeline has been in limelight because of US threat of sanctions as they fear Russian involvement will endanger European security. However, the European Union (EU) members who are participating in the pipeline project have differed from the American view and have already initiated the construction process. The dynamics of the Nord Stream 2 is very much relevant to the contemporary European geopolitical affairs, and hence a rational analysis is the need of the hour.
Energy concerns in Europe
The EU has called for its members to expand the diversity of their gas supply options and liberalize the energy market, so as to avoid monopoly and sole dependency on a single player, for example the US which has significantly increased their gas sales in Europe since the last decade. According to the ‘Quarterly Report on European Gas Markets’, the American share of gas exports has increased with 9% in the last quarter of 2019, while Norway dropped with 8%. It is widely anticipated that Norway will export less gas in the next 20 years, therefore EU members and especially Germany have been looking for other natural gas suppliers to the fulfill the 30% domestic shortage.
Pivot to Russia
The United States is one of the major gas exporters to Europe, but its expensive Liquefied Natural Gas (LNG) can fill only 7-8% of the total energy shortage. For that reason, European countries started diversifying their partners, and to their rescue came Russia which has some of the world’s largest oil and gas fields. Gazprom, one of the largest state-owned energy companies of Russia is now regarded as the largest natural gas exporter to the European Market. In 2018, Gazprom’s gas exports to Europe recorded the highest growth at 201.9 billion cubic meters.
According to the fact sheet on Nord Stream 2, from the perspective of the EU there are numerous benefits which can be achieved from the pipeline project. The project has already provided a lot of jobs to the European community and has also involved local shipping companies like the Blue Water Shipping, a Danish logistics company which has obtained a contract of 40 million euros to transport the pipes for the construction of the Nord Stream 2 pipeline.
American Sanctions and European reactions
The US administration had appealed to Germany to back out from all dealings with the major shareholder Gazprom, as they were seeking to impose sanctions on their activities. However, Germany rejected the idea of sanctions and even called out for a joint European defence against draconian American measures, and accused the Washington for interfering in the internal affairs of European countries, since the sanctions also threatened the European companies involved in the pipeline. Niels Annen, the German Minister of State at the Federal Foreign Office, had made some remarks relating to the U.S. sanctions: “If we want to maintain strong unity of purpose in dealing with Russia, extraterritorial and unintended consequences of US sanctions on European companies must be avoided”.
Nevertheless, Washington still argues that imposing sanctions is a justified measure toward “protecting Ukrainian interests”, since it is alleged that the Nord Stream 2 would replace the dependency on Ukrainian gas exports. However, the reality of sanctions is something different. First, the legislation made by the United States Congress Committee has not been proceeded yet, and while the pipeline is expected to be completed by the end of 2020, therefore it is the European companies which will face the wrath of the sanctions, without actually stopping the construction process of the pipeline.
Another major argument which the Washington has used to justify the sanctions is a peculiar concern that Moscow may take advantage of energy-dependent Germany, and can use gas exports as a “raw material blackmail”, by giving threats of limiting the exports if Berlin doesn’t agree with the political positions of the Kremlin. However, this is actually a win-win situation both for Russia and Germany, where Germany will be able to satisfy the growing domestic demands of energy and for Russia the income from the gas will help in soothing its fluctuating economy.
The Danish factor
To begin the construction phase of the Nord Stream 2 without any legal hurdles, a request to all Baltic and Nordic countries was sent in April 2017. At the outset, Denmark hesitated to allow because of some internal political concerns, however it later approved when another request was sent for an alternative route, but a more expensive one, which would be built south of the Bornholm Island. Finally in 2019, the Danish Energy Agency granted Nord Stream 2 a construction permit for the South-Eastern Route, which would stretch 147 kilometres in the Danish Exclusive Economic Zone (EEZ).
According to Hans Mouritzen, Senior Researcher at Danish Institute for International Studies (DIIS), it was highly recommended to approve of the pipeline going through Danish waters, south of the island, Bornholm. A pipeline drawn north of Bornholm would delay the project with 3 to 4 months and the extra expenses would be around $114 million, a bill that would be for European consumers to pay, had Denmark not agreed to the request.
The future scenario of Nord Stream 2 can go one in two ways from a European point of view. First, by being a part of NATO, European countries will be compelled to act in accordance with the multilateral agreements and thereby granting the US their global sovereignty, where they will be able to control and manipulate the economic cooperation between Europe and Russia, and Washington will not miss any opportunity to jeopardize the operations of Nord Stream 2. With the possibility of increased cooperation towards the US and decreased cooperation with Russia, the European countries will have more to lose in the long run.
In the second scenario, Europe cooperating more closely with Russia will bring additional trade opportunities in numerous areas, where Nord Stream 2 is just the beginning. Bringing economic stability to Russia will benefit in thwarting unilateral hegemonic interests of a single country in the world order. Pending that the US keeps Ukraine as a hostage of justice by sanctioning Russia, it vehemently prevents Europe and Russia to develop closer ties. While it is difficult to even imagine the US withdrawing sanctions from Russia, nevertheless it is possible to imagine that European countries will not abide by the external pressures. A better trading balance between Russia and the US in contemporary times will heal the historical wounds of Europe.
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