A European Union plan to reduce gas consumption by 15 percent in response to Moscow curtailing gas flows to Europe kicked in this month. Under the deal, EU member states agreed to cut their gas usage “with measures of their own choice,” which will help them replenish gas inventories before the winter months, when energy consumption is at its highest.
Although the original proposal sought a mandatory commitment, the final agreement is not binding. The question now is how—and whether—certain EU countries will meet the target. Alarm bells are ringing the loudest in Germany, the largest economy in Europe. Despite experts warning against it for years, Germany banked on Russia for its energy—relying on it for 55 percent of its gas in 2021—and is now left scrambling to meet its needs.
German gas prices are expected to rise between 71 to 200 percent, Axel Gedaschko, president of the Federal Association of German Housing and Real Estate Companies, told Foreign Policy. Many Berlin residents have already received letters from utility companies warning that prices will soon rise.
A European Union plan to reduce gas consumption by 15 percent in response to Moscow curtailing gas flows to Europe kicked in this month. Under the deal, EU member states agreed to cut their gas usage “with measures of their own choice,” which will help them replenish gas inventories before the winter months, when energy consumption is at its highest.
Although the original proposal sought a mandatory commitment, the final agreement is not binding. The question now is how—and whether—certain EU countries will meet the target. Alarm bells are ringing the loudest in Germany, the largest economy in Europe. Despite experts warning against it for years, Germany banked on Russia for its energy—relying on it for 55 percent of its gas in 2021—and is now left scrambling to meet its needs.
German gas prices are expected to rise between 71 to 200 percent, Axel Gedaschko, president of the Federal Association of German Housing and Real Estate Companies, told Foreign Policy. Many Berlin residents have already received letters from utility companies warning that prices will soon rise.
German Chancellor Olaf Scholz, who described the situation as “social dynamite,” warned of public unrest if gas prices rise drastically and said the government is doing everything it can to help its people. Meanwhile, German Vice Chancellor and Economy Minister Robert Habeck said Germany will “not bow” to the pressure Russian President Vladimir Putin has created in German society through the cuts and “will counter it with concentrated and consistent action.”
Germany is currently in the second stage of its emergency gas plan, where the “market is still able to cope with” gas disruption. In this phase, the government can assist the industry—for instance, through bailouts and infrastructure. If the country enters the third and final phase, when “all relevant market-based measures have been implemented, but gas supply is insufficient,” the German economy will face a severe blow. The state would have to intervene significantly, curtailing gas supplies to some industries, which could bring shutdowns and retrenchment. The German economy could shrink significantly, with one German chemicals CEO warning that the country’s businesses could face “the worst crisis since the second World War.”
Among the government’s latest steps to address the crunch is a new amendment to its energy security law, which now allows the government to bail out energy companies importing gas. The state has since taken a 30 percent equity stake in Uniper, the country’s largest gas importer, and extended its credit line from roughly $2 billion to $9.2 billion.
The country has also instated new energy-saving measures, including a ban on heating private swimming pools in winter and a push for unused common spaces in large office buildings to remain unheated. A range of other authorities are issuing their own guidelines to cut gas use. For instance, some municipalities have called for lowering shower temperatures in public pool bathrooms. Berlin has decided to keep lights off at tourist attractions, Cologne has dimmed street lighting after 11 p.m., Hanover has switched off lights in landmark buildings and public fountains, and a housing association in Dippoldiswalde has capped hot water supply to tenants.
Germany has even decided to reactivate its closed coal plants rather than shut down the remaining plants by the end of the decade, as previously planned. The 2011 decision to shutter the country’s three remaining nuclear plants by the end of this year is also up in the air. In addition, Germany has signed a deal with Qatar to purchase liquified natural gas (LNG) to replace a portion of Russian supplies and has expedited construction of the floating and onshore platforms needed to receive this gas.
Returning to coal is “inevitable” and will remain “instrumental” to securing energy security, said Leslie Palti-Guzman, co-founder and CEO of market artificial intelligence company Gas Vista. She also expects Germany to become Europe’s largest LNG importer by 2025.
Although these decisions are controversial, even supporters of green energy are having to compromise on their principles. For instance, Habeck, who represents the Green party, has justified the new coal policy. Describing the decision to revert to coal as “bitter,” Habeck said the top priority is that “gas storage tanks must be full in winter.”
“When it comes to diversification of fossil fuel supplies away from Russia, coal is the dirtiest—but also the quickest—solution,” said Maria Pastukhova, a senior policy advisor at climate think tank E3G. Returning to coal, she said, had not been an easy decision for the Greens, which as part of the current government is “forced to remedy the mistakes past governments made by putting brakes on [the] accelerated deployment of renewables.”
Although Pastukhova insists that green energy and not fossil fuels are the solution to Germany’s energy crisis, she acknowledges that Germany must meet the demands of its most gas-dependent sectors: residential heating and industry. Still, she said, government policy to get more LNG is flawed. “Diversifying gas supplies takes time—building onshore LNG terminals takes up to four years—and a lot of money, as German buyers need to compete for scarce supplies with other global buyers and invest billions in new LNG infrastructure,” she said.
While the government has been forced to meet the current deficit with fossil fuels, it is still ramping up renewable energy plans for the medium term. It is working on installing more solar and wind energy farms and has recently issued what Pastukhova described as a “most extensive energy efficiency support package” of $180 billion to the Climate and Transformation Fund, with nearly $58 billion going to building renovation.
Even with these policies in place, there are concerns that the gas crisis will hamstring industries. Although some companies are switching to alternatives now—Mercedes-Benz, for instance, recently announced it will replace up to half of its gas consumption in Germany with renewable energy this year—others can’t make the switch so easily. Gas-dependent industries, such as aluminum, steel, glass, and paper, are particularly vulnerable. Germany has around 240 aluminum companies with more than 60,000 employees, but according to a survey conducted by the German Aluminum Association, 9 out of 10 companies would not be able to switch to another energy source. Hinrich Mählmann, the association’s president, told Reuters that companies were preparing for the worst-case scenario: the shutdown of plants and huge subsequent job losses.
“If we don’t get Russian gas, we will have a substantial problem,” Michael Huber, head of Veltins Brewery, told German daily Handelsblatt, adding that brewing has become much more expensive in general. The glass industry has issued its own appeal in a video titled “Alarmstufe Rot” (“Red Alert”), in which entrepreneurs, employees, and local politicians highlight how a rise in energy prices has made their businesses unsustainable and threatened thousands of jobs.
Meanwhile, ordinary citizens are feeling the effects of the high prices and increasingly worry about how they will get by in the coming months. Although some Germans are saving up ahead of the higher gas prices, others are buying wood-burning stoves and stockpiling wood. Analysts worry that if energy prices continue to go up, support for Ukraine might wane among German citizens.
Experts believe the government can still do more to help its people. Lion Hirth, a professor of governance of digitalization and energy policy at the Hertie School in Berlin, advocates direct and unconditional cash transfers to protect vulnerable citizens—an idea he says is popular among economists. “Direct cash transfers provide financial relief without reducing the incentive to reduce consumption,” he said.
The state can also implement housing relief measures. Gedaschko, for one, said the government should offer a support package to help housing companies and low-income households weather soaring gas costs. “Many of our housing companies are already in great financial and economic difficulties because they currently need to make enormous advance payments for gas supplies to providers,” he said, adding that this will trickle down to high-heating costs for tenants.
Even with these difficulties, experts believe the government will manage to keep homes warm in the coming winter. Eventually, however, emergency measures won’t be sufficient. “The crisis will not be over when this winter comes to an end,” Pastukhova said.
The only long-term solution, according to many experts, environmentalists, and even German politicians, is a transition toward cleaner energy. But the fear is that the pressure to provide now—to keep homes warm and industries functioning—might derail Germany in its quest to go green.
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