Current issues related to economics, (responsible) investment, pensions and income: every week an APG expert gives a clear answer to the question of the week. This time: Peter Verbaken, Head of APG's Commodities Team, talks about the consequences of a boycott of Russian energy.
A gas and oil boycott is not part of the latest sanctions package against Russia, but it is a measure the EU is holding in reserve. According to a report by the Netherlands Bureau for Economic Policy Analysis, the Netherlands will be hit hard if Brussels imposes such a ban. Should we therefore be afraid of such a boycott? Or will the consequences not be as bad as expected, as professor of economics Sweder van Wijnbergen argues in de Volkskrant?
First of all, Verbaken says that the situation in Ukraine affects him. “It is terrible to see how the people of Ukraine are suffering from the violence of war and how the country seems to be slowly being devastated. I've been following it closely from the start, also partly because of the impact it has on my work, and I sincerely hope it ends soon."
Coal as an alternative
Because of Europe’s heavy dependence on Russian gas, a gas boycott will hit harder than an oil boycott, Verbaken argues. “In the Netherlands, we have been lucky with a mild winter. At the end of last year, even before the Russian invasion of Ukraine, there was already a huge increase in the price of gas because stocks were so low. The mild winter and an increase in Russian gas supplies enabled us to get through the winter. But now we need to replenish gas supplies in the summer. If a ban on Russian gas imports does not allow us to replenish stocks in time, an alternative plan will be needed. Van Wijnbergen mentions the use of coal as a solution. In theory, that is indeed possible, although it is, of course, contrary to current climate policy. But it cannot be ruled out that politicians might nevertheless decide to switch from gas to coal in this exceptional situation.”
The question is whether coal can make up for the loss of Russian gas. Verbaken does not think so. “In practice it will turn out that you also have to do something on the demand side. For example, there is already a government campaign called ‘Turn the Switch’, which aims to get households to turn the thermostat a degree lower. However, a third of the gas demand in the Netherlands comes from industry. In order to reduce this demand, it cannot be ruled out that large industrial gas consumers will be forced to use less gas. This is certainly conceivable if Dutch gas reserves are not to be topped up with Russian gas this summer. However, forcing industry to use less gas is a radical measure of the kind we haven't seen since the 1970s, with the oil crisis and car-free Sundays.”