Economic Researchers Advocate Greater Energy Cooperation in Europe

Economic researchers from various countries have called on the EU to view the energy crisis following the Russian attack on Ukraine as a wake-up call and to strive for better cooperation in Europe. “Not only can switching to non-fossil energy sources reduce strategic dependency: if done correctly, it can also lower electricity prices and help the EU and its member states achieve their climate targets. Further integration of the European electricity markets and gas grids is essential in order to better balance out regional shortages,” they write in a paper for the EconPol Europe research network.

Measures that distort competition, such as government price interventions, should be avoided. These dampen efforts to make savings and reduce incentives to invest. Short-term interventions could make it more difficult to restructure the energy system in the long term.  If they are nevertheless implemented, a balance must be found between support measures for households and those for companies.

Europe should also avoid strategic dependencies, for instance on raw materials or hydrogen. This calls for more intra-European flexibility, global supply diversity, and an appropriate network of pipelines for hydrogen and gas. Gas grids would also have to be shut down or repurposed for hydrogen. Ignoring this challenge now will probably drive up costs in the long term.

Governments need to create financial leeway so they are able to provide support in times of crisis. It is also necessary to promote the transition to a low-carbon economy. This would not necessarily require an increase in public debt, but rather a reduction in expenditure – for example by abolishing subsidies for fossil fuels – and an increase in revenue through appropriate CO2 prices.

To better deal with future crises, the researchers believe that Europe should set up a strategic future office along the same lines as Singapore and (specifically for health issues) Taiwan. This approach paid off handsomely for Taiwan during the coronavirus pandemic because it meant the country was very well prepared.
 
The authors of the paper are: Karen Pittel and Julio Saavedra from the ifo Institute, environmental economist Andreas Löschel from Ruhr University Bochum, Georg Zachmann from the Brussels think tank Bruegel, David Newbery, Director of the Cambridge Energy Policy Research Group, Pedro Linares from Comillas Pontifical University in Spain, and Frédéric Gonand from the University of Paris Dauphine-PSL.

Questions can be directed to: Prof. Karen Pittel, 0049 89 9224 1384, Pittel@ifo.de