Brussels Behind the Scenes: Breaking Vlad

Breaking Vlad

Russia’s posturing towards Ukraine is the issue of the moment. How to react to any further incursions into its neighbour’s territory is top of the EU’s to-do list. While sanctions seem inevitable, the ongoing green energy transition is where they should focus.

The Kremlin insists that Russian soldiers will not be crossing Ukraine’s border (again) despite mounting evidence to the contrary. Russian diplomats have started to deny invasion reports, which is normally a sign that we are closer than ever to something bad happening.

European leaders have been mostly unanimous in support for their eastern neighbour but what happens next is difficult to predict.

UK intelligence says Russia is planning to install a puppet regime in Kyiv, the US is so spooked it has advised the families of diplomats to leave Ukraine, while the EU is playing it far more calmly.

If Russia does indeed make good on its implicit threats or maybe even if the current high-pressure situation continues, the EU will get more serious about imposing sanctions on Vladimir Putin’s regime. Talks are already ongoing with NATO allies about it.

BRUSSELS BEHIND THE SCENES is a weekly newsletter which brings the untold stories about the characters driving the policies affecting our lives. Analysis not found anywhere else, The Brussels Times’ Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels behind the scenes straight to your inbox every week, subscribe to the newsletter here.

When to trigger sanctions and what sectors should feel the brunt of the penalties will be difficult to iron out. Some countries will be more affected by sanctions, for example, on energy supplies than the financial sector.

Nord Stream 2 - a gas pipeline under the Baltic Sea linking Russia to Germany - is an obvious target and one that the US has repeatedly taken aim at. Pressure continues to grow and now it seems likely that if an invasion happens, the project could be shelved.

That is at least in the short-term. Germany - and the European Commission - has allowed NS2 to come to fruition despite the invasion of Crimea in 2014 and despite the obvious financial impact the new pipeline will have on Ukraine, where gas transit fees are lucrative.

Russia’s state-owned Gazprom, the pipe’s owner, has also complied this week with a Germany energy agency ruling that a subsidiary must own and operate the 54-km-long segment that is within the Bundesrepublik’s territory. 

Berlin has also painted itself into a corner with its energy mix: nuclear is gone, coal is getting ever more expensive due to carbon pricing and ever more politically toxic due to climate change awareness. Germany needs lots of gas, for better or for worse.

So NS2 sanctions are either not going to do much other than bruise Russia’s reputation a bit more or simply not work because they will be short-lived due to German reliance on cheap energy imports. The pipe is built and it is not going anywhere soon.

Bet on the future

If the EU is to punish and deter Russia from further aggression on its border, sanctions should focus on access to clean energy technologies, which are going to become more important and more profitable with each passing year.

Putin has in the past quipped that global warming is good, because Russians will have to “spend less on fur coats”, and insisted that “invisible changes in the galaxy” and volcanic eruptions are the causes of climate change. 

Like any politician, his stance has changed to suit the particular needs of the moment. Putin currently seeks to burnish his facade of climate-concerned statesman, even though Russia’s emissions goals are widely ridiculed for barely making a dent in greenhouse gas output. 

At a meeting with Italian business leaders this week, which went ahead despite Prime Minister Mario Draghi’s disapproval, Russia’s president touted his country’s climate-neutrality goal and the clean energy opportunities that will be on offer.

A similar meeting with German businesses is also reportedly on the cards.

“Russia has considerable resources and technological potential, which we intend to use for developing green energy,” Putin told attendees, adding that he wants big investments in the hydrogen industry and that Russia might be the biggest producer and exporter by 2035.

Italy is already a big investor in Russia. Its banks and companies fund LNG exports, wind farms and its manufacturers are providing advanced technology for the Vostok Oil Project, one of Russia’s largest hydrocarbon extraction sites.

More technology transfers will undoubtedly happen in the coming years - not just from Italy - as green steel, hydrogen and ammonia production, e-fuels and carbon capture all attract more investors and scale-up. Russia will want to get in on that act, so the EU has leverage.

The fossil fuel industry wants to repurpose its assets - refineries, pipelines, empty gas shelves - into something profitable for the 21st century. That requires money, so the EU should give Moscow a taste of its own medicine and turn the taps off.

Brussels will also have a way to price dirty imports out of the single market, through a carbon border tax.

That planned instrument will slap levies on products that fall foul of environmental criteria and Russia is exposed in that regard. It has already warned its industries to adapt and started crying foul about World Trade Organisation principles being breached. It is a weakness in Putin’s armour.

The EU is already working with the US on developing cheap green steel and aluminium; Washington will obviously be keen to help isolate Moscow and might be open to using that partnership to do it.

Nowhere to run

Won’t Russia just double-down on new markets in Asia, particularly China, you ask? It is a risk but China is playing the long green-game as well, make no mistake. Last year, it built so much offshore wind capacity that it now accounts for half of the world’s total.

By 2030, the power grids of China’s many vast provinces are due to be linked up, which means far fewer coal power plants will be needed and green energy will be able to go where it is needed. It is hard to see how Russia’s exports fit into this picture in the long-term.

The Green Deal is also far more powerful than many realise and will be the playbook that will govern policy for the next couple of decades. Simple economics will make sure of that, as renewable energy continues to fall in price and polluting fuels get more expensive.

Non-EU countries and regions will see that success and want a piece of it. Russia included.

The EU has a golden opportunity to cut Russia’s hold over it and its allies, while also working towards its main goal of holding back climate change. Two-birds-with-one-stone is a gift that cannot be ignored.

Many citizens may fail to see how events in far-off Ukraine affect their day-to-day lives but ever greater numbers are starting to cotton onto the existential threat of a heating planet.

BRUSSELS BEHIND THE SCENES is a weekly newsletter which brings the untold stories about the characters driving the policies affecting our lives. Analysis not found anywhere else, The Brussels Times’ Sam Morgan helps you make sense of what is happening in Brussels. If you want to receive Brussels behind the scenes straight to your inbox every week, subscribe to the newsletter here.