In 2022, the worst energy crisis the world has encountered in the past few decades struck, sending shockwaves through the global economy. The surge in the price of staple commodities, most notably the WTI crude oil index, continued to rise and peaked on August 6 with a closing price of 122.11 dollars. According to NYMEX, the NGZ22 index for natural gas also reached its summit of 7.308 dollars on November 23. Such astonishing results may be a wake-up call for politicians and authorities in European, warning them that "Winter is coming."
The following article will introduce and examine the policies adopted to tackle the crisis, also revealing the debatable game theory between nations.
Causes of Global Energy Crisis
Generally speaking, the tragedy results in boosting demand and dwindling resources supplied, followed by several turbulences aggravating the circumstances.
Why does the demand for these staple commodities, typically oil and natural gas, rise? It is influenced by the loosening restrictions of countries worldwide, causing massive recovery flows.
There is also fierce competition between buyers from Europe and South Asia, and such conflict may never end. China, strictly enforcing its pandemic regulations for two years, has proclaimed to lift its domestic COVID-2019 restrictions in mid-November and is planning to completely open its border on January 3, 2023. The recovery of China may further contribute to the shortage of oils and natural gases.
However, despite the increasing demand， the most influential factor is the diminishing oil and natural gas supply from its major exporter—— Russia. Russia possessed the world's largest reserves of natural gas, equivalent to a quarter of the world's share of 24.3%. Moreover, it is the second and second largest natural gas and oil exporter, respectively.
Initially, Russia supplied 40-50% of the European Union's natural gas orders. However, the outburst of the Russia-Ukraine war has put an end to this harmonious figment. The warfare and the mutual sanction between Europe and Russia served as a catalyst that accelerated the day and night worsening energy crisis. Once the invasion is broadcasted, members of the European Union decide to wean themselves off the dependence on Russian natural gases. However, "The ideal is full, the reality is so skinny." Since the early twentieth-century European countries like the United Kingdom have halted investment in extracting natural gas; with the negligible ability of self-sufficiency, Europe cannot shift its energy source in such a short period.
The inexpedient strategy soon bore its consequences as the retaliations from Russia began. Starting from April， Gazprom company has been continuously narrowing its export to multiple European regions. In July, the transport of natural gas from Russia to German through the Nord Stream pipeline declined to 1.4 billion cubic feet per day, less than a quarter of its maximum volume.
On September 26, in the Baltic Sea, enclosed by Denmark, Estonia, Finland, and other countries, massive gas bubbles popped out of the azure water surface. Warnings were posted to prohibit the entrance of any ships and cargo for potential danger caused by the diminished density of the seawater mixing with natural gas. North stream one and North stream two pipelines were verified to be sabotaged, marking an irreversible turning point of this reticent combat. This malicious and unreasonable attack damaged at least three spots of the vital junctions, which has significantly thwarted the recovery of trade and relationships between countries in the vicinity of the Baltic Sea and the owner of the pipelines ——Russia.
The Government's Reaction
Besides tackling the tense relationship with Russia and issuing humanitarian financial support to Ukraine, authorities of the European Union have passed an edict regarding the sufficient reserves of natural gas. The European Union member countries were urged to fill all of those gas-storage facilities to at least eighty percent by the end of September. With the help of another significant exporter, European countries have achieved fifteen percent beyond the set target of reaching nighty five percent total capacity.
However, although there was currently an abundance of storage of resources, European people still had to carry out new policies restricting the usage of natural gas and electricity. Winter this year will be bound to be chill.
A majority of the countries have enforced targeted fiscal policies aiming to stabilize the price of critical commodities. Spain chose to foster the generation of electricity using natural gas, prioritizing the sustainable provision of electricity to cut down the cost. Italy, with a similar situation, adopted identical measures to alleviate consumer tax burdens. France has set a price ceiling for the gas price with an increment of four percent on a year-on-year basis.
Other up-to-ground limitations were also taken into account. Such as the restriction of closing the door when air conditioners were on, control of maximum hours for households burning gas, and enforcement of minimized time for the streetlight to be lit.
Long-term strategies for figuring out ways to support Europe with renewable energy are also on the agenda. European people attempt to construct wind turbines in the North Sea, generating wind energy using the solid prevailing wind with a speed of 14.5 miles per hour. According to an article, the project's operator plans to triple capacity to handle the wind project by 2026.
Other than wind power, solar power is also emphasized by the European people. The amount of solar panels sold in China has dramatically increased. However, experts cast doubt over the practical effect of universally introducing solar energy given the notoriously changeable weather and prohibiting cost of solar panels.
Effectiveness of Policies
In summer the wholesale price for a megawatt per hour of electricity generated by natural gas is over 300 Euro. After several rounds of supporting policies and the expected natural gas to be delivered in the first quarter of the following year, the final wholesale price is estimated to be stabilized at around 125 Euro per megawatt hour.
The unemployment rate remained stable in a range of counties. After stabilizing the price level for electricity, German secondary sector recovered in celerity and resulted in an unemployment rate of 3 percent. Italy has significantly eased the unemployment rate from 9 percent in January to 7.8 percent in October 2022. Although such accomplishment cannot be entirely attributed to the effectiveness of the energy policy, the continued relief in employment pressure indicates Italy is not severely shocked by the crisis.
However, there are also flaws in the untargeted policies. In most cases in Europe, only indirect tax, the most notably value-added tax, is reduced. Undoubtedly, the policy has drug down the price of energy successfully, but without targeted aid to the poor, the inequality gap will be strengthened. That is because more impoverished people are more sensitive to price change than wealthier people.
The prolonged effect of the crisis
Excessive government spending accompanied by shrinking levies from taxes creates a vast budget deficit adding to the vulnerability of the financial system. Since the outburst of the Russia-Ukraine war, commodities inflation has swept rampantly throughout western counties. To counter the surging price, European Central Bank raised the interest rate, hoping to prevent hyperinflation. However, side effects of high interest have posed the risk of deindustrialization in Europe. The situation got even worse as America granted generous subsidies, alluring firms in Europe to "escape ."In other words, The Americans are stealing the only existing industrial treasures left by the second industrial revolution.
All in all, inflation, budget deficit, and capital escape may cause foreseeable detrimental effects on the economy of the whole of Europe. The "winter" of Europe must be enduring.