May 6, 2021, 12:07 PM
In March, the Biden administration announced it was considering sanctions on companies involved in the construction of the Nord Stream 2 pipeline—even mulling a special diplomatic envoy to navigate the tangled geopolitics it has generated. Now, the White House is facing mounting pressure from Congress to follow through with a full diplomatic push.
Nord Stream 2—which is slated for completion this year—will double the existing flow of natural gas from northern Russia to Greifswald, Germany. Advocates of the pipeline herald it as a step toward European energy stability while critics pan it as a scheme by politicians in the pocket of energy conglomerates. Others, like U.S. Secretary of State Antony Blinken, condemn Nord Stream 2 as a “Russian geopolitical project intended to divide Europe and weaken European energy security.”
There are many reasons to see Russia and President Vladimir Putin as agents of geopolitical destabilization. But natural gas is not one of them. In fact, sanctioning Germany over Nord Stream 2 would damage transatlantic relations and undermine the very sort of cooperative diplomacy Europe and the United States need to fight climate change. As Germany moves closer toward a carbon-friendly grid, Russian natural gas is—at best—a temporary bridge on the path to full reliance on renewables. That’s especially true considering the European Union is now hoping to abandon natural gas by 2050 in an effort to go carbon neutral. Instead of sanctions on Nord Stream 2, U.S. President Joe Biden should help Europe green its electricity system so it can reach a clean energy future on schedule. For those concerned about geopolitics, such an approach has the added benefit of making Russian natural gas redundant.
Absent from the U.S. discussion on Nord Stream 2 is any effort to understand Germany’s perspective on natural gas. Indeed, Germany’s pipeline politics only makes sense against the backdrop of the country’s energy transformation or “Energiewende.” Since 2000, Germany has been working to place its electricity sector on a solar, wind, and biogas foundation—a process that was hastened by the Fukushima nuclear disaster in 2011. The country has made great progress. But the government has financed renewables with heavy surcharges, taxes, and grid fees, giving Germans some of the highest electricity prices in the world.
In addition to being costly, renewable power is also intermittent. Running the grid requires a stable base load of electricity for when the wind does not blow and the sun does not shine. Since German Chancellor Angela Merkel began to phase out atomic power in June 2011, Germany has covered much of its base load with lignite coal, a dirty form of energy that is terrible for the atmosphere. But in 2020, Berlin made the commendable but highly contested decision to phase out coal-powered electricity entirely by 2038. Environmentalists say this is not soon enough. But for a nation with thousands of coal jobs in economically stagnant regions, Merkel’s is an impressive promise—strikingly different from other coal-producing nations like the United States, Poland, and China, which have hardly considered such a far-reaching policy.
With nuclear- and coal-powered generation slated for termination, how can Germany cover its base-load electricity? Batteries are one answer; investment in storage is growing, and the technology is improving dramatically. But covering the electricity needs of a wealthy, industrial nation through wind and solar plus storage will take time, investment, and state action. As a result, natural gas has become a crucial but hidden pillar of the Energiewende—a way to enable Germany’s coal and nuclear phaseout. Since 2000, the country’s power production from natural gas has nearly doubled; as a source of electricity, only renewables have grown faster.
Now, the United States is asking Germany to stop a natural gas project at the very moment it is needed more than ever. Washington is less concerned about the climate implications of Nord Stream 2 than the pipeline’s feared political and economic repercussions. Instead of working with Russia, Washington wants Germany to buy liquified natural gas (LNG) produced from the United States. But according to most estimates, U.S. LNG is more expensive than Russian pipeline gas. LNG also has a notoriously volatile price.
In calling for the end of Nord Stream 2, Blinken is creating headwind for Germany’s climate policy—and asking German consumers to pay even higher prices for their power. Added to Germany’s bill would likely be expensive lawsuits if the remaining 93 miles of the pipeline were never completed, as companies like Gazprom and Royal Dutch Shell try to recoup sunk investments worth billions of dollars. The whole ordeal, moreover, is out of sync with Biden’s pledge to work with all countries—including adversaries—to combat climate change.
The geopolitical logic behind U.S. Nord Stream 2 policy is straightforward. It is also not new. The Biden administration is worried Russia will use the pipeline to exert leverage over the EU, echoing concerns from the era of former U.S. President Ronald Reagan about the Yamal-Europe pipeline, which transported Siberian natural gas to West Germany via Ukraine. “Is there any doubt,” then-U.S. Assistant Secretary of Defense Richard Perle asked in 1981, “that our allies would listen more carefully to kings and rulers who supply them with energy than to those who do not?”
Yet, even at the height of the Cold War, Perle’s fears did not materialize. Russia has never shut off natural gas to Germany as a direct geopolitical tactic. On the contrary: During moments of energy instability, Russia has kept the gas flowing like in 1979 when a trilateral West German-Iranian-Russian natural gas deal collapsed during the Iranian Revolution and the second oil shock, only to be followed by a new bilateral deal between Russia and Germany.
The only time Russia stopped the tap was in 2009. But in this instance, Germany and the EU were bystanders to a dispute over whether Ukraine was siphoning off more natural gas than permitted during a particularly cold winter. And Moscow faced consequences: Both Russia and Ukraine suffered blows to their reputations as a reliable energy supplier and a conduit country, respectively, and Gazprom itself incurred financial losses.
Of course, past performance is no promise of future returns—especially in geopolitics. But the fear Russia might use natural gas for leverage over Germany finds little support in history. It also overlooks the dependence Gazprom itself has on Central European consumers.
Nevertheless, if the United States truly fears German dependence on Russian natural gas, the solution is not to impose sanctions but to help Berlin develop a more diverse and competitive energy market. This would allow Germans to turn to different sources of power—natural gas or otherwise—as base-load electricity to complement their growing renewable portfolio. But creating markets takes time and effort. This is particularly so for energy, a commodity that requires immense capital and infrastructure to extract or collect, process, transport, and distribute to consumers. One cannot simply wave the wand of sanctions and expect American LNG to become cost-competitive in Europe overnight.
Biden might try the carrot instead of the stick. Rather than canceling Nord Stream 2 outright, he can ensure the pipeline remains just one of many sources fueling Germany’s base-load electricity. The United States could, for instance, co-finance the construction of Germany’s own LNG terminal that could import natural gas from anywhere in the world.
Here, Biden would have to be careful to put his money where his mouth is. In 2020, Olaf Scholz, Germany’s finance minister and the Social Democratic Party’s candidate for chancellor, made a similar suggestion to the Trump administration—but allegedly offered German taxpayer money to help foot the bill. German media slammed his proposal as a “dirty deal” trying to buy Nord Stream 2 out of sanctions. If funding were reversed, however, such an infrastructure project could allay qualms about the geopolitics of Russian natural gas while opening Germany’s market to even cheaper sources of this fuel from Qatar or Nigeria.
But an LNG terminal would still be a hydrocarbon solution that contributes to a warming world. Far better would be if Biden could use this moment as an opportunity to advance collaboration between the EU’s Green Deal and his own climate agenda at home. In this way, Biden could build on the promises of his recent Climate Leaders Summit to craft a blueprint for a new, cooperative approach to climate diplomacy in the field of electricity storage.
The United States is a leader in battery technology, and Germany needs storage capacity more than any other nation. The state of California—a pioneer in developing lithium batteries for cell phones and electric cars—is now the global frontrunner in the construction of large battery systems that store electricity generated by the sun and wind. The world’s largest battery system is nearing completion in Monterey, California, surpassing the previous record holder in San Diego—and more mega batteries are on the way in San Francisco and Long Beach. The United States as a whole is installing record volumes of grid storage, breaking through the 1-gigawatt mark for the first time in 2020. Germany, by contrast, despite exceling at small-scale household electricity storage, still lags behind in the large infrastructure projects needed to manage a renewables-only grid.
These complementary capabilities present an opportunity. Joint U.S.-German ventures backed by state financing could roll out battery storage on a grand scale in Europe. This would turn natural gas into just one of many options for powering the grid during the gray, windless days so common in Northern Europe—and eventually make natural gas superfluous as the cost of solar, wind, and batteries continue to fall. Both countries, moreover, would benefit: Germany by greening its grid and hastening the Energiewende and the United States by mitigating what it considers to be a geopolitical threat from Russia and fine-tuning a more malleable approach to climate diplomacy.
In climate diplomacy, short-term self-interest often prevents parties from reaching an optimal solution for everyone. Nord Stream 2—seemingly a Gordian knot—is one such case: Washington’s immediate desire to minimize European dependence on Russia obscures a more effective and permanent resolution to Europe’s energy challenges.
Fighting climate change requires a collaborative global effort, the likes of which could be spoiled by the sanctions the Biden administration is considering. To foster a more cooperative style of climate politics, the U.S. president should let Nord Stream 2 go and instead focus his attention and money on helping Europe build the energy infrastructure for the future. If he does so, Biden might find that a green future can arrive sooner than anticipated.