U.S. Sanctions on Russia Over Ukraine Also Target Venezuela, Nicaragua, Cuba

Editor’s Note: The following represents the writer’s analysis and was produced in partnership by Newsclick and Globetrotter.

The current crisis of spiraling gas prices in Europe, coupled with a cold snap in the region, highlights the fact that the transition to green energy in any part of the world is not going to be easy. The high gas prices in Europe also bring to the forefront the complexity involved in transitioning to clean energy sources: that energy is not simply about choosing the right technology, and that transitioning to green energy has economic and geopolitical dimensions that need to be taken into consideration as well.

Gas wars in Europe are very much a part of the larger geostrategic battle being waged by the United States using the North Atlantic Treaty Organization (NATO) and Ukraine. The problem the United States and the EU have is that shifting the EU’s energy dependence on Russia will have huge costs for the EU, which is being missed in the current standoff between Russia and NATO. A break with Russia at this point over Ukraine will have huge consequences for the EU’s attempt to transition to cleaner energy sources.

The European Union has made its problem of a green transition worse by choosing a completely market-based approach toward gas pricing. The blackouts witnessed by people in Texas in February 2021 as a result of freezing temperatures made it apparent that such market-driven policies fail during vagaries of weather, pushing gas prices to levels where the poor may have to simply turn off their heating. In winter, gas prices tend to skyrocket in the European Union, as they did in 2020 and again in 2021.

For India and its electricity grid, one lesson from this European experience is clear. Markets do not solve the problem of energy pricing, as they require planning, long-term investments and stability in pricing. The electricity sector will face disastrous consequences if it is handed over to private electricity companies, as is being proposed in India. This is what the move to separate wires from the electricity they carry aims to achieve through Indian Prime Minister Narendra Modi’s government’s proposed amendment to the existing Electricity Act of 2003.

In order to understand the issues related to transitioning toward green energy, it is important to take a closer look at the current gas supply-related issues being faced by the European Union. The EU has chosen gas as its choice of fuel for electricity production, as it goes off coal and nuclear while also investing heavily in wind and solar. The argument advanced in favor of this choice is that gas would provide the EU with a transitional fuel for its low carbon emission path, as gas tends to produce less emissions than coal. It is another matter that gas is at best a short-term solution, as it still emits half as much greenhouse gas as coal.

As I have written earlier, the problem with green energy is that it requires a much larger capacity addition to handle seasonal and daily fluctuations that planners have not accounted for while advocating for switching over to clean energy sources. During winter, days are shorter in higher latitudes, and the world therefore gets fewer hours of sunlight. This seasonal problem with solar energy has been compounded in Europe with low winds in 2021 reducing the electricity output of windmills.

The European Union has banked heavily on gas to meet its short- and medium-term goals of cutting down greenhouse emissions. Gas can be stored to meet short-term and seasonal needs, and gas production can even be increased easily from gas fields with requisite pumping capacity. All this, however, requires advance planning and investment in surplus capacity building to meet the requirements of daily or seasonal fluctuations.

Unfortunately, the EU is a strong believer that markets magically solve all problems. It has moved away from long-term price contracts for gas and toward spot and short-term contracts—unlike China, India and Japan, which all have long-term contracts indexed to their oil prices.

Why does the gas price affect the price of electricity in the EU? After all, natural gas accounts only for about 20 percent of the EU’s electricity generation. Unfortunately for the people in the EU region, not only the gas market but also the electricity market has been “liberalized” under the market reforms in the EU. The energy mix in the grid is determined by energy market auctions, in which private electricity producers bid their prices and the quantity they will supply to the electricity grid. These bids are accepted, in order from lowest to highest, until the next day’s predicted demand is fully met. The last bidder’s price then becomes the price for all producers. In the language of Milton Friedman’s followers—who were known as the Chicago Boys—this price offered by the last bidder is its “marginal price” discovered through the market auction of electricity and, therefore, is the “natural” price of electricity. For readers who might have followed the recently concluded elections in Chile, Augusto Pinochet—who was a military dictator in Chile from 1973 to 1990—introduced the Constitution of 1980 in Chile and had incorporated the above principle in a constitutional guarantee to the neoliberal reforms in the electricity sector in the country. Hopefully, the victory of the left in the presidential elections in Chile and the earlier referendum on rewriting the Chilean constitution will also address this issue. Interestingly, it was not the former UK Prime Minister Margaret Thatcher—as is commonly thought—who started the electricity “reforms” but Pinochet’s bloody regime in Chile.

At present in the EU, natural gas is the marginal producer, and that is why the price of gas also determines the price of electricity in Europe. This explains the almost 200 percent rise in electricity price in Europe in 2020. In 2021, according to an October 2021 report by the European Commission, “Gas prices are increasing globally, but more significantly in net importer regional markets like Asia and the EU. So far in 2021, prices tripled in [the] EU and more than doubled in Asia while only doubling in the U.S.” [emphasis added].

The coupling of the gas and the electricity markets by using the marginal price as the price of all producers means that if gas spot prices triple as has been seen recently, so will the electricity prices. No prizes for guessing who gets hit the hardest with such increases. Though there has been criticism from various quarters regarding the use of marginal price as the price of electricity for all suppliers irrespective of their respective costs, the neoliberal belief in the gods of the market has ruled supreme in Europe.

Russia has long-term contracts as well as short-term contracts to supply gas to EU countries. Putin has mocked the EU’s fascination with spot prices and gas prices and said that Russia is willing to supply more gas via long-term contracts to the region. Meanwhile, in October 2021, European Commission President Ursula von der Leyen said that Russia was not doing its part in helping Europe tide over the gas crisis, according to an article in the Economist. The article stated, however, that according to analysts, Russia’s “big continental customers have recently confirmed that it is meeting its contractual obligations,” adding that “[t]here is little hard evidence that Russia is a big factor in Europe’s current gas crisis.”

The question here is that the EU either believes in the efficiency of the markets or it doesn’t. The EU cannot argue markets are best when spot prices are low in summer, and lose that belief in winter, asking Russia to supply more in order to “control” the market price. And if markets indeed are best, why not help the market by expediting the regulatory clearances for the Nord Stream 2 pipeline, which will ship Russian gas to Germany?

This brings us to the knotty question of the EU and Russia. The current Ukraine crisis that is roiling the relationship between the EU and Russia is closely linked to gas as well. Pipelines from Russia through Ukraine and Poland, along with the undersea Nord Stream 1, currently supply the bulk of Russian gas to the EU. Russia also has additional capacity via the newly commissioned Nord Stream 2 to supply more gas to Europe if it receives the financial regulatory clearance.

There is little doubt that Nord Stream 2 is caught not simply in regulatory issues but also in the geopolitics of gas in Europe. The United States pressured Germany not to allow Nord Stream 2 to be commissioned, and also threatened to impose sanctions on companies involved with the pipeline project. Before stepping down as the chancellor of Germany in September 2021, Angela Merkel, however, resisted pressure from Washington to halt the work on the pipeline and forced the United States to concede to a “compromise deal.” The Ukraine crisis has created further pressure on Germany to postpone Nord Stream 2 even if it means worsening its twin crises of gas and electricity prices.

The net gainer in all of this is the United States, which will get the EU as a buyer for its more expensive fracking gas. Russia currently supplies about 40 percent of the EU’s gas. If this stalls, the United States, which supplies about 5 percent of the EU’s gas demand (according to 2020 figures), could be a big gainer. The United States’ interest in sanctioning Russian gas supply and not allowing the commissioning of Nord Stream 2 has as much to do with its support to Ukraine as seeing that Russia does not become too important to the EU.

Nord Stream 2 could help form a common pan-European market and a larger Eurasian consolidation. Just as it did in East and Southeast Asia, the United States has a vested interest in stopping trade following geography instead of politics. Interestingly, gas pipelines from the Soviet Union to Western Europe were built during the Cold War as geography and trade got priority over Cold War politics.

The United States wants to focus on NATO and the Indo-Pacific region, as its focus is on the oceans. In geographical terms, the oceans are not separate but a continuous body covering more than 70 percent of the world’s surface with three major islands: Eurasia, Africa and the Americas. (Although in the formulation of British geographer Halford Mackinder, the originator of the world island idea, Africa was seen as a part of Eurasia.) Eurasia alone is by far the bigger island, with 70 percent of the world’s population. That is why the United States does not want such a consolidation.

The world is passing through perhaps the greatest transition that human civilization has known in meeting the current challenges posed by climate change. To address these challenges, an energy transition is required that cannot be achieved through markets that prioritize immediate profits over long-term societal gains. If gas is indeed the transitional fuel, at least for Europe, it needs long-term policies of integrating its gas grid with gas fields, which have adequate storage. And Europe needs to stop playing games with its energy and the world’s climate future for the benefit of the United States.

For India, the lessons are clear. Markets do not work for infrastructure. Long-term planning with state leadership is what India needs to ensure supply of electricity to all Indians and ensure the country’s green transition—instead of dependence on electricity markets created artificially by a few regulators framing rules to favor the private monopoly of electricity companies.

Prabir Purkayastha is the founding editor of Newsclick.in, a digital media platform. He is an activist for science and the free software movement.

Correction: A previous version of this article stated the United States owed a greater amount to the UN’s climate finance program.

If anyone expected ambitious delivery of climate finance given the rhetoric at the United Nations’ 26th Conference of Parties (COP26), they would be disappointed. Ongoing discussions regarding climate funding to help developing countries meet their obligations reveal serious limitations, according to experts Toward Freedom interviewed.

A meeting was held March 8-9 to discuss the next round of funding for the Global Environment Facility (GEF) Trust. The trust was established in 1992 to support developing countries to comply with international environmental conventions and agreements, like those related to climate change, biodiversity, chemicals, and waste and food security. Currently, discussions are on for the eighth round of funding.

Wealthy Countries’ ‘Ambitious Regression’

As of now, it looks like funding for climate action will be around $1 billion. This is only marginally better than the seventh replenishment cycle that allocated $800 million, about $200 million less than the sixth cycle.

“This is what ambitious regression looks like,” said Zaheer Fakir, one of the lead coordinators for the African Group of Negotiators on Climate Change (AGN).

Moreover, certain developed countries like the United States, Japan and Switzerland have proposed smaller allocations toward climate change in the GEF, while prioritizing other items like biodiversity and chemicals. Their argument is that while other entities—like the Green Climate Fund—could mobilize climate funding, GEF is the only grant-based, multilateral financing mechanism for other issues like biodiversity loss and chemical waste.

But developing countries don’t share this view, according to Fakir. Speaking for South Africa, he said the GEF should ideally scale up allocations for all areas—including climate change—because it is an entity through which funding is provided under the United Nations Framework Convention on Climate Change (UNFCCC), too.

This is in line with an October 2020 COP guidance to the GEF that encourages GEF, as part of its eighth replenishment process, “to duly consider ways to increase the financial resources allocated for climate action” and calls upon developed country parties to “contribute to a robust eighth replenishment… to support developing countries in implementing the Convention…” The guidance note also specifically invites GEF “to duly consider the needs and priorities of developing country Parties when allocating resources to developing country Parties.”

In fact, the Memorandum of Understanding between COP and GEF explicitly states GEF policies, program priorities and eligibility criteria related to UNFCCC shall be decided by the COP.

“All developing countries, be it in Africa or Asia or Latin America are calling for an increase in overall GEF funding because there are legitimate needs for climate action and also other areas like biodiversity,” said Kamal Djemouai, an independent climate consultant from Algeria and former AGN chair. “We need new and additional finance for all areas from climate change to biodiversity to land management.”

The United States has pushed to keep current funding low, despite owing $102.4 million to the GEF for previous replenishment cycles.

The other issue is donor-dictated policies. Fakir explained that GEF policies, country allocations and focal area programming are dictated by developed country contributors that are donors to the trust. Djemouai agreed, saying allocations to the GEF “do not reflect the needs of developing countries or even the guidance given by COPs.”

GEF Chief Executive Officer and Chairperson Carlos Manuel Rodriguez declined to reply to this reporter’s questions.

The United States Disappoints

The other recent blow to expectations of increased climate finance delivery came last week when the United States allocated $1 billion toward international climate finance for fiscal year 2022. U.S. President Joe Biden had promised to deliver $11.4 billion each year by 2024.

“Hopes were raised quite high, but the allocation fell severely short. So yes, it is disappointing,” said Joe Thwaites, an associate of the Sustainable Finance Center at the World Resources Institute. He pointed out that, at this rate, it would take up to the year 2050 for the United States to meet its target of $11.4 billion per year unless the 2023 U.S. spending bill allocates substantially more toward international climate finance.

The United States also has not set aside money for the Green Climate Fund (GCF). GCF mobilizes funding to enable developing countries to adapt to a rapidly warming world. This comes as the United States still owes $2 billion to GCF out of U.S. President Barack Obama’s pledge of $3 billion.

An Unfair Advantage for Some Island Nations?

Policy recommendations from the February 2-4 GEF meeting suggest support for introducing a “Vulnerability Index” to replace the GDP index used as the criteria to access climate finance. This has given rise to concerns among certain developing countries that climate funding for poorer nations could instead go to richer ones.

On March 18, Brazil, India, Mexico, South Africa, China and Latin American countries released a joint statement raising concerns about the Vulnerability Index. The term “vulnerable countries” is not part of any multilateral environmental agreements for which GEF is the financing mechanism. Currently, the only categorization is “developed” and “developing.”

The GEF must “continue to treat all developing recipient countries equally and, in this regard, must not introduce new categories of countries or to provide for any differentiation or graduation among developing countries for accessing its financial resources or financial terms,” the statement argued.

This policy recommendation follows a previously made demand at UNGA to use a Multidimensional Vulnerability Index (MVI) for small island developing states (SIDS) to access concessional financing, or grant funding.

Small islands are vulnerable to climate change impacts. But it could be considered unfair to rank SIDS that are high-income or even upper-middle-income countries, like Mauritius and St. Lucia, higher than least developed countries, like Mozambique, Yemen and Afghanistan. A higher ranking would open the path to lower interest-rate loans.

The United Kingdom, too, favors reworking the criteria. Geopolitical considerations like accommodating Caribbean islands post-Brexit to offer the Commonwealth as an alternative to the European Union might play a role.

The GEF is holding another meeting for discussions on the eighth replenishment in the first week of April.

Rishika Pardikar is a freelance journalist in Bangalore, India. She had reported for Toward Freedom from COP26 in Glasgow.