26. 04. 2024
AUTHOR: Linda Kalcher and Aymeric Kouam
On 28-30 April 2024, European Union (EU) Officials and Ministers from Canada, France, Germany, Italy, Japan, the United Kingdom and the United States will meet in Turin, Italy for the Group of Seven (G7) Ministerial on Climate, Energy and Environment. Off the back of the 28th United Nations (UN) Climate Change Conference (COP28) last year in Dubai, United Arab Emirates, and the proposal for the EU's 2040 climate target, the G7 can set the course for accelerating the fossil fuel phase-out both domestically and globally.
Advancing the global phase-out of fossil fuels in the wake of COP28
Traditionally, the G7 is a venue for fireworks of disagreement on how to transition away from fossil fuels, particularly gas. Most G7 countries are in favour of implementing a coal phase-out over the next decade. In the G7 Hiroshima Leaders' Communiqué, adopted last year, the G7 voiced support to "accelerate the phase-out of unabated fossil fuels so as to achieve net zero in energy systems by 2050 at the latest."
However, the facts on the ground tell a different story. The US became the world's biggest exporter of liquified natural gas (LNG) in just eight years. Japan is exploring the costly approach of ammonia-coal co-firing. Germany continues to expand its gas infrastructure. Italy wants to position itself as a gas hub for Europe, despite compelling analysis that LNG demand might peak in the EU this year already and Italy's infrastructure is sufficient to meet any future gas demand requirements. The G7 risks being out of touch with the new economic reality in which clean energy provides the greatest growth and energy security.
A supply-demand analysis by Zero Carbon Analytics stresses the risk of a gas oversupply in the EU, considering the structural decline in gas demand in alignment with EU climate policies. If the EU meets its climate targets, supply from existing gas fields in the region and already-agreed contracts would exceed demand by 2035. In an even more ambitious net-zero scenario, existing EU domestic supply and contracts would be more than double the demand by 2040.
It is in this context that G7 Ministers are expected to discuss how to advance the fossil fuel phase-out both domestically and globally. The opportunities are clear: the Nationally Determined Contributions (NDCs) for 2035, which need to be submitted to the UN in less than a year, provide an opportunity for all countries to set concrete and tangible phase-out trajectories for coal, oil and gas.
Unless the G7 shows clear leadership in this regard, they risk permitting all other countries to not set such goals either. The European Commission's prediction that a 90% climate target for 2040 would reduce the EU's fossil fuel consumption by 80% can set a good example.
Europe to show leadership in phasing-out from fossil fuels
Climate change, Russia's war on Ukraine and the ensuing energy crises, have been the drivers for structural change within the EU energy system and its infrastructures, adopting, among others, the EU Green Deal and the REpowerEU plan, meaning:
- Committing to a reduction of greenhouse gas emissions by 55% by 2030,
- Reaching at least a 42.5% share of renewable energy by 2030,
- Reducing final energy consumption through energy efficiency, as agreed in the revised Energy Efficiency Directive, and
- Expanding energy networks and improving cross-border interconnections.
According to our study, Turning the European Green Deal into Reality, if all these laws are implemented, by 2030 oil and gas consumption could be reduced by a third across the EU and coal could be phased out.
The G7 can provide a space for EU officials to reaffirm their commitments and lead the way in the transition away from fossil fuels.
Considering the recent conclusions of both the Enrico Letta report, Much more than a market, and our report, Forging Economic Security and Cohesion in the EU, this is a question of energy and economic security for Europe. The EU is still heavily reliant on fossil fuel imports, reinforcing its vulnerability to price shocks. The EU imported a total of €640 billion in fossil fuels in 2022, and approximately €375 billion in 2023, even with reduced prices. Energy prices are twice as high in Europe compared with China and the US, putting pressure on households and businesses.
It is in the EU's best interest to accelerate the deployment of renewable energy production sources, in line with a 90% climate target by 2040. Our latest report shows that such a target can reduce electricity prices by 12% and cut household energy bills by two-thirds by 2035, while contributing to €856 billion in savings on oil, gas and coal imports between 2025 and 2040.
Our policy recommendations to support EU fossil fuel phase-out:
- A zero-emission electrification framework: to set clear trajectories for electrification (such as CO₂ standards in select sectors), the deployment of clean electricity sources and energy efficiency optimisation measures.
- A European Industrial Strategy: to complement and support the achievements of climate targets, providing the best environment for a clean technology industrial base in Europe.
- A new financial architecture: to support investments in renewable energy infrastructures and net-zero technologies manufacturing, integrating a simplification of the Important Projects of Common European Interest (IPCEI) framework with a new European Investment Fund to replace NextGenerationEU, expiring in 2026.
- The integration of clear fossil fuel phase-out dates per sector in the revision of the European Climate Law to allow for a just transition: to provide clarity and predictability, ensuring energy demand is not met by the remaining fossil fuels. With clear phase-out trajectories, stakeholders can start building transition plans for their economy including re-skilling and training.
- The establishment of new economic partnerships and NDC diplomacy: to focus on decarbonisation cooperation and create local value chains for zero-carbon technology production in partner countries.
