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Energy & Climate Security Risk Index

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Energy & Climate Security Risk Index

The Energy Security Risk Index reflects the four dimensions of energy security (geopolitics, economics, reliability, and environment), covering 42 individual risk indicators, based on thousands of data points. Each of the four dimensions of energy security constitute a sub-index.
About the Index

Geopolitics

• Security of World Oil Reserves
• Security of World Oil Production
• Security of World Natural Gas Reserves
• Security of World Natural Gas Production
• Security of World Coal Reserves
• Security of World Coal Production
• Security of Petroleum Imports
• Security of Natural Gas Imports
• Crude Oil Price Volatility

Affordability

• Oil & Natural Gas Import Expenditures
• Oil & Natural Gas Import Expenditures per GDP
• Energy Expenditures per GDP
• Energy Expenditures per Capita
• Retail Electricity Prices - HH
• Crude Oil Prices
• Energy Expenditure Volatility
• Science & Engineering Degrees
CO2 Costs

Reliability

• World Oil Refinery Utilization
• Petroleum and Gas Stock Levels
• Energy Consumption per Capita
• Household, Commercial, and Industrial Energy Efficiency
• Electricity Capacity Diversity
• Electricity Capacity Margins
• Electricity Transmission Line Mileage
• Transmission and Distribution Losses
• Transportation Energy Use per Capita
Transportation Energy Use per GDP
Gas Infrastructure Reliability

Sustainability

• Energy Intensity
• Fossil Energy Intensity
• Transportation Non-Petroleum Fuels
CO2 Prices
• Energy-Related CO2 Emissions per Capita
• Energy-Related CO2 Emissions Intensity
• Electricity Non-CO2 Generation Share
• Land Cover
• Waste per Capita
• Waste Recovery

Sector overview

Energy & Climate Risk

The Russian invasion of Ukraine has put European energy and climate security through its most difficult test so far. The energy crisis that began before the war was precipitated by the Kremlin to pressure Europe, or at least some Member States, into complicity. The spike in energy prices, aggravated by the slow pace of the energy transition and the excessive reliance of many EU Member States on Russian fossil fuel exports have been key contributing factors to the sharp increase of the Energy and Climate Security Risk Index (ECSRI) for the European Union.
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In light of Russia’s increasingly aggressive rhetoric towards Ukraine in recent years, Germany failed to recognise the warning signs and instead continued to follow the “Wandel durch Handel” (change through trade) doctrine under the assumption that economic interdependences would be sufficient to quell any Russian plans for military aggression. Germany has emerged as one of the most vulnerable EU countries in terms of security of supply and overall energy and climate security. Its growing dependence on imports of Russian natural gas has strongly contributed to the strong increase in geopolitical risks.
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The energy and climate security risk position of Italy has moved more or less in sync with the general EU trend since 2015. Most EU countries have made significant progress in decarbonising their energy sectors in-creasing the share of renewables in power generation and boosting energy efficiency. Italy is no exception. Over the past decade, the sustainability risks have gone down by a quarter on the back of the rise in renewable energy share in final energy demand and the stronger market signal to accelerate decarbonisation coming from higher CO2 prices.
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Bulgaria has seen the fastest improvement of its energy and climate security position in the SEE region. The main reason has been the relative decline in energy poverty, the pressure on the macroeconomic stability from oil and gas imports and the significant expansion of renewable energy sources in power generation. This — coupled with a diverse power supply system in which nuclear power contributes to a third of the overall power generation, and the opening of LNG imports in 2019 — brought down even traditionally high reliability risks.

Despite the integration of large volumes of renewable energy sources and the closing of coal-fired power plants, key sustainability risks remain higher than in Bulgaria and Romania. In particular, the share of non-CO2 electricity capacity remains significantly below that for Romania and Bulgaria. The energy consumption per capita in the transport sector has increased and also stands noticeably above the values in Romania and Bulgaria.
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Romania’s energy and climate security position has improved markedly in the affordability and sustainability categories as energy consumption has fallen significantly and RES-based power generation investments have skyrocketed. As in the other two SEE countries, the decline in oil and gas prices and the shrinking of energy poverty have been improving Romania’s affordability risks. The country has also become even less dependent on oil and gas imports from Russia and will be the most prepared to become mostly self-sufficient in the wake of the Russian war in Ukraine.

Energy & Climate Risk

The Russian invasion of Ukraine has put European energy and climate security through its most difficult test so far. The energy crisis that began before the war was precipitated by the Kremlin to pressure Europe, or at least some Member States, into complicity. The spike in energy prices, aggravated by the slow pace of the energy transition and the excessive reliance of many EU Member States on Russian fossil fuel exports have been key contributing factors to the sharp increase of the Energy and Climate Security Risk Index (ECSRI) for the European Union.
Read more

 
 

In light of Russia’s increasingly aggressive rhetoric towards Ukraine in recent years, Germany failed to recognise the warning signs and instead continued to follow the “Wandel durch Handel” (change through trade) doctrine under the assumption that economic interdependences would be sufficient to quell any Russian plans for military aggression. Germany has emerged as one of the most vulnerable EU countries in terms of security of supply and overall energy and climate security. Its growing dependence on imports of Russian natural gas has strongly contributed to the strong increase in geopolitical risks.
Read more

The energy and climate security risk position of Italy has moved more or less in sync with the general EU trend since 2015. Most EU countries have made significant progress in decarbonising their energy sectors in-creasing the share of renewables in power generation and boosting energy efficiency. Italy is no exception. Over the past decade, the sustainability risks have gone down by a quarter on the back of the rise in renewable energy share in final energy demand and the stronger market signal to accelerate decarbonisation coming from higher CO2 prices.
Read more

Bulgaria has seen the fastest improvement of its energy and climate security position in the SEE region. The main reason has been the relative decline in energy poverty, the pressure on the macroeconomic stability from oil and gas imports and the significant expansion of renewable energy sources in power generation. This — coupled with a diverse power supply system in which nuclear power contributes to a third of the overall power generation, and the opening of LNG imports in 2019 — brought down even traditionally high reliability risks.

Despite the integration of large volumes of renewable energy sources and the closing of coal-fired power plants, key sustainability risks remain higher than in Bulgaria and Romania. In particular, the share of non-CO2 electricity capacity remains significantly below that for Romania and Bulgaria. The energy consumption per capita in the transport sector has increased and also stands noticeably above the values in Romania and Bulgaria.
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Romania’s energy and climate security position has improved markedly in the affordability and sustainability categories as energy consumption has fallen significantly and RES-based power generation investments have skyrocketed. As in the other two SEE countries, the decline in oil and gas prices and the shrinking of energy poverty have been improving Romania’s affordability risks. The country has also become even less dependent on oil and gas imports from Russia and will be the most prepared to become mostly self-sufficient in the wake of the Russian war in Ukraine.

Geopolitical Risk

The geopolitical risk sub-index has increased for all EU Member States as global fossil fuel production and reserves are getting increasingly concentrated in the hands of a few authoritarian states. On top of that, the security of oil and natural gas imports, which are specific for each country, has worsened noticeably for Italy and Germany, as well as for the whole EU.
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Germany faces severe geopolitical risks when it comes to energy supply. The overall geopolitical risk index shows an increase of 36% since the annexation of Crimea in 2014, a development mainly caused by the worsening of its natural gas security. Germany has become much more vulnerable over the last two decades by increasing its gas consumption (especially in the energy and industrial sectors) and continuously deepening its reliance on Russia, neglecting true gas supply diversification options in favour of the Nord Stream I and II projects.
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Similar to Germany, Italy faces considerable geopolitical risks to its energy and climate security – 10% higher than for the European Union as a whole in 2021. The worsening of the security of natural gas imports is the main contributing factor for this negative development. While Italian natural gas demand had been falling prior to the annexation of Crimea, this trend reversed after 2014, leading to growing dependence on Russian imports.
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The geopolitical risks to Bulgaria’s energy supply have decreased since 2014, mainly on the back of some progress towards natural gas supply diversification, with the first ever large volumes of LNG deliveries from Greece in 2019. For the first time, Bulgaria replaced around a quarter of the gas supply from Russia with non-Russian volumes. 2021 saw a renewed increase of the risk, mainly due to higher oil price volatility and a partial rebound of gas imports from Russia. Going forward geopolitical risk is set to fall further with the pivot away from Russia since Gazprom unilaterally cut flows to Bulgaria in April 2022 due to Bulgaria’s refusal to pay in roubles, and with additional volumes from Azerbaijan via the IGB pipeline expected towards the end of 2022.

Greece has positioned itself as a natural gas hub in Southeast Europe. It receives large volumes via pipeline from Azerbaijan and Russia and it has an LNG import terminal. However, a long-term vulnerability is that Greece has kept increasing its overall dependence on natural gas, mainly in the power sector. This is bound to also expand the share of Russian gas in the mix despite statements by Greek politicians to the contrary. Two of the largest gas companies in Greece recently extended their long-term contracts with Gazprom until the latter part of the 2020s.

Romania has traditionally been a leader in energy supply security as it is the largest oil and gas producer in the region. Although Romania exports refined petroleum products, predominantly gasoline and diesel oil, it still is a net importer of oil and gas. However, Romania is one of the most energy-independent countries in Europe and is a net exporter of electricity. The aggregated depletion rate of hydrocarbon reserves is 10% per year; meaning that without supplementary sources, in the next five to ten years Romania’s import dependence will double from current levels. Therefore, although Romania has reduced its geopolitical risks, it remains quite vulnerable to oil and gas price volatility as well as the maintenance of hydrocarbon production.

Geopolitical Risk

The geopolitical risk sub-index has increased for all EU Member States as global fossil fuel production and reserves are getting increasingly concentrated in the hands of a few authoritarian states. On top of that, the security of oil and natural gas imports, which are specific for each country, has worsened noticeably for Italy and Germany, as well as for the whole EU.
Read more

Germany faces severe geopolitical risks when it comes to energy supply. The overall geopolitical risk index shows an increase of 36% since the annexation of Crimea in 2014, a development mainly caused by the worsening of its natural gas security. Germany has become much more vulnerable over the last two decades by increasing its gas consumption (especially in the energy and industrial sectors) and continuously deepening its reliance on Russia, neglecting true gas supply diversification options in favour of the Nord Stream I and II projects.
Read more

Similar to Germany, Italy faces considerable geopolitical risks to its energy and climate security – 10% higher than for the European Union as a whole in 2021. The worsening of the security of natural gas imports is the main contributing factor for this negative development. While Italian natural gas demand had been falling prior to the annexation of Crimea, this trend reversed after 2014, leading to growing dependence on Russian imports.
Read more

The geopolitical risks to Bulgaria’s energy supply have decreased since 2014, mainly on the back of some progress towards natural gas supply diversification, with the first ever large volumes of LNG deliveries from Greece in 2019. For the first time, Bulgaria replaced around a quarter of the gas supply from Russia with non-Russian volumes. 2021 saw a renewed increase of the risk, mainly due to higher oil price volatility and a partial rebound of gas imports from Russia. Going forward geopolitical risk is set to fall further with the pivot away from Russia since Gazprom unilaterally cut flows to Bulgaria in April 2022 due to Bulgaria’s refusal to pay in roubles, and with additional volumes from Azerbaijan via the IGB pipeline expected towards the end of 2022.

Greece has positioned itself as a natural gas hub in Southeast Europe. It receives large volumes via pipeline from Azerbaijan and Russia and it has an LNG import terminal. However, a long-term vulnerability is that Greece has kept increasing its overall dependence on natural gas, mainly in the power sector. This is bound to also expand the share of Russian gas in the mix despite statements by Greek politicians to the contrary. Two of the largest gas companies in Greece recently extended their long-term contracts with Gazprom until the latter part of the 2020s.

Romania has traditionally been a leader in energy supply security as it is the largest oil and gas producer in the region. Although Romania exports refined petroleum products, predominantly gasoline and diesel oil, it still is a net importer of oil and gas. However, Romania is one of the most energy-independent countries in Europe and is a net exporter of electricity. The aggregated depletion rate of hydrocarbon reserves is 10% per year; meaning that without supplementary sources, in the next five to ten years Romania’s import dependence will double from current levels. Therefore, although Romania has reduced its geopolitical risks, it remains quite vulnerable to oil and gas price volatility as well as the maintenance of hydrocarbon production.

Affordability Risk

The Affordability pillar assesses the impact of energy prices and energy imports on macroeconomic stability, as well as energy poverty at the household level. Some of the indicators directly show the effect of energy prices, in particular crude oil, natural gas and electricity prices for household and business consumers. Furthermore, the Affordability sub-index takes into account national expenditures on oil and gas imports and their weight relative to national GDP. Overall energy expenditures are considered as a major risk factor.
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After a period of relatively low energy expenditures, affordability risk levels for Germany have skyrocketed in 2021, driven by the surge in fossil fuel prices and the country’s above-average CO2 costs, retail electricity prices, and energy expenditures per capita. The high CO2 costs reveal that despite the success in its energy transition, Germany remains a highly carbon intensive economy.
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The spike in oil and gas prices has contributed strongly to the increase of affordability risks in Italy. Together with the impact of higher CO2 costs, the country’s industrial competitiveness has been deeply eroded in recent years. Italy’s slower progress, compared to other Western European countries, towards the EU’s key decarbonisation goals such as decreasing the share of fossil fuels in the transportation and electricity sectors have maintained the country’s exposure to the volatility of fossil fuel prices.
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Bulgaria is among the worst performers in the SEE region in terms of energy intensity of the economy and energy poverty. Despite an improvement over the past several years, if we compare key risk metrics such as energy intensity and energy expenditures per GDP, Bulgaria still stands out as an underperformer relative to Greece and Romania. In 2019, estimated energy expenditures in Bulgaria for every EUR 1000 of GDP stood at over EUR 65, 37% higher than in Romania and 45% higher than in Greece.

Greece has not seen any major improvement in its energy affordability position since 2015. Greece has suffered some of the worst energy poverty crises after the 2009 economic crisis, during which period one in two Greeks was considered energy poor. The fall in oil and gas prices after 2014 did not resolve the structural problem with high levels of energy poverty in the country but have somewhat alleviated the pressure on household budgets. The 2021 energy crisis is likely to lead to a severe worsening of energy poverty indicators despite the decision of the government to cut energy taxes and increase energy subsidies to the most vulnerable segments of the society.

Romania’s highest energy security risks are related to its energy expenditure volatility, energy expenditure intensity, and energy intensity of the economy – particularly in the transport sector. Romania, like the other two EU member states in the SEE, are pondering how to complete the phase out of coal-fired power generation as quickly as possible without compromising the security of supply and at the same time preventing skyrocketing power prices. Energy poverty is probably the single biggest energy security risk faced by the country as close to 14% of Romanians faced difficulties paying their utility bills in 2020 and around a third of households fall below the poverty line after they have covered their energy needs.

Affordability Risk

The Affordability pillar assesses the impact of energy prices and energy imports on macroeconomic stability, as well as energy poverty at the household level. Some of the indicators directly show the effect of energy prices, in particular crude oil, natural gas and electricity prices for household and business consumers. Furthermore, the Affordability sub-index takes into account national expenditures on oil and gas imports and their weight relative to national GDP. Overall energy expenditures are considered as a major risk factor.
Read more

After a period of relatively low energy expenditures, affordability risk levels for Germany have skyrocketed in 2021, driven by the surge in fossil fuel prices and the country’s above-average CO2 costs, retail electricity prices, and energy expenditures per capita. The high CO2 costs reveal that despite the success in its energy transition, Germany remains a highly carbon intensive economy.
Read more

The spike in oil and gas prices has contributed strongly to the increase of affordability risks in Italy. Together with the impact of higher CO2 costs, the country’s industrial competitiveness has been deeply eroded in recent years. Italy’s slower progress, compared to other Western European countries, towards the EU’s key decarbonisation goals such as decreasing the share of fossil fuels in the transportation and electricity sectors have maintained the country’s exposure to the volatility of fossil fuel prices.
Read more

Bulgaria is among the worst performers in the SEE region in terms of energy intensity of the economy and energy poverty. Despite an improvement over the past several years, if we compare key risk metrics such as energy intensity and energy expenditures per GDP, Bulgaria still stands out as an underperformer relative to Greece and Romania. In 2019, estimated energy expenditures in Bulgaria for every EUR 1000 of GDP stood at over EUR 65, 37% higher than in Romania and 45% higher than in Greece.

Greece has not seen any major improvement in its energy affordability position since 2015. Greece has suffered some of the worst energy poverty crises after the 2009 economic crisis, during which period one in two Greeks was considered energy poor. The fall in oil and gas prices after 2014 did not resolve the structural problem with high levels of energy poverty in the country but have somewhat alleviated the pressure on household budgets. The 2021 energy crisis is likely to lead to a severe worsening of energy poverty indicators despite the decision of the government to cut energy taxes and increase energy subsidies to the most vulnerable segments of the society.

Romania’s highest energy security risks are related to its energy expenditure volatility, energy expenditure intensity, and energy intensity of the economy – particularly in the transport sector. Romania, like the other two EU member states in the SEE, are pondering how to complete the phase out of coal-fired power generation as quickly as possible without compromising the security of supply and at the same time preventing skyrocketing power prices. Energy poverty is probably the single biggest energy security risk faced by the country as close to 14% of Romanians faced difficulties paying their utility bills in 2020 and around a third of households fall below the poverty line after they have covered their energy needs.

Reliability Risk

The Reliability pillar reflects the exposure of the national economy and different economic sectors to potential energy supply disruptions. This includes a wide variety of factors, such as national petroleum/gas stocks, the spare capacity of the global oil refining industry, the resilience of the national electricity system, the energy intensity of the national industrial, commercial, and household sectors, as well as the role of the transport sector in the national economy. The risks for the electricity and natural gas system are of particular importance amid growing electrification and the mounting challenges linked to the excessive dependence on Russian supply.

The risks to Germany’s reliability of supply have been steadily declining over the last five years and are below the EU average levels although there has been a slight uptick in 2021. According to the results of the Index, the main drivers of Germany’s reliability risk profile are its high energy intensity, empty gas storages, the still heavily oil-dependent transport sector and the low capacity diversity of the electricity sector, which is below the EU average.
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The main reliability risk indicator in Italy is the low electricity capacity diversity. Italy has failed to diversify its power mix since 2008 and its capacity diversity stays at 70% below the EU average. The excessive dependence on natural gas in the power sector is the main factor determining the limited capacity diversity.
Read more

The relatively low energy efficiency of the Bulgarian economy makes it particularly vulnerable to energy supply disruptions. It also has the lowest number of days of normal oil consumption covered by storage, as compared to Romania and Greece. The reliability of electricity supply benefits from a diverse power generation mix, although the excessive spike in peak electricity demand in winter is a key vulnerability. Modelling assessments clearly show that the power system remains adequate even with a full coal phase out, revealing that the decarbonisation of electricity generation is also feasible from an energy security point of view even if it means that Bulgaria becomes a net importer of electricity by 2030.

The relatively high share of natural gas in Greece’s electricity mix supports healthy capacity margins and helps balance the huge influx of intermittent renewables. While this contributes to lower reliability risk, it exposes the country to the high volatility of oil and gas prices and contributes higher affordability risks. The country remains a net importer of electricity, a trend that may be reversed with the increase in renewable energy and storage penetration. A key point is that for the reliability of supply to be guaranteed at the regional level, it would be crucial to complete all interconnection projects and improve the coordination of trans border capacity allocation among the three transmission system operators.

Romania’s reliability risk position has somewhat worsened since 2015 due to high transportation sector energy use and overall energy use per capita. That said, Romania is the least vulnerable country to oil and gas supply disruptions as it is a major producer of hydrocarbons. In addition, Romania is well interconnected to other gas and power markets, positioning it to potentially act as a major energy exporter over the next decade. Its diversified electricity generation portfolio means that a coal phase out is unlikely to undermine the adequacy of the power system even as massive amounts of variable solar and wind power capacity is added to the system.

Reliability Risk

The Reliability pillar reflects the exposure of the national economy and different economic sectors to potential energy supply disruptions. This includes a wide variety of factors, such as national petroleum/gas stocks, the spare capacity of the global oil refining industry, the resilience of the national electricity system, the energy intensity of the national industrial, commercial, and household sectors, as well as the role of the transport sector in the national economy. The risks for the electricity and natural gas system are of particular importance amid growing electrification and the mounting challenges linked to the excessive dependence on Russian supply.

The risks to Germany’s reliability of supply have been steadily declining over the last five years and are below the EU average levels although there has been a slight uptick in 2021. According to the results of the Index, the main drivers of Germany’s reliability risk profile are its high energy intensity, empty gas storages, the still heavily oil-dependent transport sector and the low capacity diversity of the electricity sector, which is below the EU average.
Read more

The main reliability risk indicator in Italy is the low electricity capacity diversity. Italy has failed to diversify its power mix since 2008 and its capacity diversity stays at 70% below the EU average. The excessive dependence on natural gas in the power sector is the main factor determining the limited capacity diversity.
Read more

The relatively low energy efficiency of the Bulgarian economy makes it particularly vulnerable to energy supply disruptions. It also has the lowest number of days of normal oil consumption covered by storage, as compared to Romania and Greece. The reliability of electricity supply benefits from a diverse power generation mix, although the excessive spike in peak electricity demand in winter is a key vulnerability. Modelling assessments clearly show that the power system remains adequate even with a full coal phase out, revealing that the decarbonisation of electricity generation is also feasible from an energy security point of view even if it means that Bulgaria becomes a net importer of electricity by 2030.

The relatively high share of natural gas in Greece’s electricity mix supports healthy capacity margins and helps balance the huge influx of intermittent renewables. While this contributes to lower reliability risk, it exposes the country to the high volatility of oil and gas prices and contributes higher affordability risks. The country remains a net importer of electricity, a trend that may be reversed with the increase in renewable energy and storage penetration. A key point is that for the reliability of supply to be guaranteed at the regional level, it would be crucial to complete all interconnection projects and improve the coordination of trans border capacity allocation among the three transmission system operators.

Romania’s reliability risk position has somewhat worsened since 2015 due to high transportation sector energy use and overall energy use per capita. That said, Romania is the least vulnerable country to oil and gas supply disruptions as it is a major producer of hydrocarbons. In addition, Romania is well interconnected to other gas and power markets, positioning it to potentially act as a major energy exporter over the next decade. Its diversified electricity generation portfolio means that a coal phase out is unlikely to undermine the adequacy of the power system even as massive amounts of variable solar and wind power capacity is added to the system.

Sustainability Risk

The Sustainability pillar includes the climate and environmental factors that affect the sustainability of the national economy and the extent of alignment with key EU decarbonisation objectives. Primary risk factors include the emission intensity of the energy sector and the share of fossil fuels in key sectors such as electricity generation and transport, as well as in the overall structure of the national economy. The sustainability factors also include risk metrics that evaluate the level of development of the circular economy and the sustainability of land use.

A return to higher coal and gas power generation has reversed some of the reductions in the level of Germany’s sustainability risks, contributing to a rebound of energy-related emissions. Germany risks a long-term lock-in in stranded fossil fuel assets without a significant acceleration of the uptake of renewable energy sources as a key measure to counter the energy crisis.
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Despite the general European decarbonisation trend over the past decade, Italy has seen a slower reduction of its sustainability risks compared to the EU average. There has been a minor improvement in the level of energy-related emissions per capita since 2014 (-1,4%) compared to the EU-27 (-5,2%). Italy is lacking behind also in the share of non-CO2 electricity generation capacity, with a 22% share compared to the 45% of the EU.
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High fossil energy intensity, contributes to a high climate risk for Bulgaria despite an improvement over the past several years. Reaching carbon neutrality by 2050 is possible but requires an overhaul of the country’s energy and climate strategy. A clear coal phase-out timeline is a must, as without it the current pledge to reduce CO2 emissions by 40% until 2026 is pure fancy and could lead to even greater subsidies for the outdated coal fleet. Meanwhile, Bulgaria is experiencing a boom in private investment in renewable energy sources, which are, however, bottlenecked by an unclear regulatory framework, lack of transparency of administrative procedures, the risk of corruption and state capture and low public acceptability.

The energy and fossil fuel intensity of the Greek economy have barely decreased despite the acceleration of RES-based investment. However, the sustainability risk trends are bound to change significantly in the 2020s as the Greek NECP calls for the decommissioning of all lignite plants by 2028 and goes further by calling for the decommissioning of 1700MW out of the 3904MW currently in operation by 2022. The aggressive coal phase out strategy is coupled with an even more ambitious strategy for RES uptake in power generation. A total of 19 GW of renewables are expected to be operational by 2030 leading to potentially stranded fossil-fuel assets in natural gas and the need for greater imports of electricity from Italy and the Balkans.

Romania has seen its sustainability risks fall by 15% since 2015 on the back of a strong decline in energy intensity, an increase in the share of renewables in power generation and the gradual reduction of coal-fired power supply. RES expansion is likely to accelerate throughout the 2020s, in combination with a rapid coal phase out as the operation of the country’s lignite fleet is no longer economically feasible at the current CO2 prices and the lack of available subsidies for coal. A full decarbonisation of the energy system and a transformation of the economy would require a much greater focus on the industrial and transportation sectors where there is a need for a consistent long-term policy for electrification via RES-based sources.

Sustainability Risk

The Sustainability pillar includes the climate and environmental factors that affect the sustainability of the national economy and the extent of alignment with key EU decarbonisation objectives. Primary risk factors include the emission intensity of the energy sector and the share of fossil fuels in key sectors such as electricity generation and transport, as well as in the overall structure of the national economy. The sustainability factors also include risk metrics that evaluate the level of development of the circular economy and the sustainability of land use.

A return to higher coal and gas power generation has reversed some of the reductions in the level of Germany’s sustainability risks, contributing to a rebound of energy-related emissions. Germany risks a long-term lock-in in stranded fossil fuel assets without a significant acceleration of the uptake of renewable energy sources as a key measure to counter the energy crisis.
Read more

Despite the general European decarbonisation trend over the past decade, Italy has seen a slower reduction of its sustainability risks compared to the EU average. There has been a minor improvement in the level of energy-related emissions per capita since 2014 (-1,4%) compared to the EU-27 (-5,2%). Italy is lacking behind also in the share of non-CO2 electricity generation capacity, with a 22% share compared to the 45% of the EU.
Read more

High fossil energy intensity, contributes to a high climate risk for Bulgaria despite an improvement over the past several years. Reaching carbon neutrality by 2050 is possible but requires an overhaul of the country’s energy and climate strategy. A clear coal phase-out timeline is a must, as without it the current pledge to reduce CO2 emissions by 40% until 2026 is pure fancy and could lead to even greater subsidies for the outdated coal fleet. Meanwhile, Bulgaria is experiencing a boom in private investment in renewable energy sources, which are, however, bottlenecked by an unclear regulatory framework, lack of transparency of administrative procedures, the risk of corruption and state capture and low public acceptability.

The energy and fossil fuel intensity of the Greek economy have barely decreased despite the acceleration of RES-based investment. However, the sustainability risk trends are bound to change significantly in the 2020s as the Greek NECP calls for the decommissioning of all lignite plants by 2028 and goes further by calling for the decommissioning of 1700MW out of the 3904MW currently in operation by 2022. The aggressive coal phase out strategy is coupled with an even more ambitious strategy for RES uptake in power generation. A total of 19 GW of renewables are expected to be operational by 2030 leading to potentially stranded fossil-fuel assets in natural gas and the need for greater imports of electricity from Italy and the Balkans.

Romania has seen its sustainability risks fall by 15% since 2015 on the back of a strong decline in energy intensity, an increase in the share of renewables in power generation and the gradual reduction of coal-fired power supply. RES expansion is likely to accelerate throughout the 2020s, in combination with a rapid coal phase out as the operation of the country’s lignite fleet is no longer economically feasible at the current CO2 prices and the lack of available subsidies for coal. A full decarbonisation of the energy system and a transformation of the economy would require a much greater focus on the industrial and transportation sectors where there is a need for a consistent long-term policy for electrification via RES-based sources.

Italy

Despite the general European decarbonisation trend over the past decade, Italy has seen a slower reduction of its sustainability risks compared to the EU average. There has been a minor improvement in the level of energy-related emissions per capita since 2014 (-1,4%) compared to the EU-27 (-5,2%). Italy is lacking behind also in the share of non-CO2 electricity generation capacity, with a 22% share compared to the 45% of the EU.

Unlocking the wind and solar energy potential of the country and integrating demand response in balancing services is critical for tackling the overreliance on natural gas and the geopolitical, affordability and reliability risks associated with it. Italy’s weak ambition on key sustainability policies, such as renewable energy development and energy efficiency, have limited the country’s ability to deal with the current energy crisis and become more resilient to external shocks. The Italian government does not have major plans to reduce the natural gas dependence to the same degree as most of the other EU member states. By 2030, according to the country’s National Energy and Climate Plan (NECP), natural gas will still make up 38% of the power generation mix, one of the highest in Europe. The decision to extend the natural gas lock-in has been closely associated with the existence of a state capacity mechanism that provides for long-term power purchasing agreements (PPAs) from 2024 to 2040. The short-term policy focus on supply diversification should not undermine the longer-term and more sustainable objective for reducing energy security risks, namely the complete phase-out of natural gas from domestic consumption.

Germany

A return to higher coal and gas power generation has reversed some of the reductions in the level of Germany’s sustainability risks, contributing to a rebound of energy-related emissions. Germany risks a long-term lock-in in stranded fossil fuel assets without a significant acceleration of the uptake of renewable energy sources as a key measure to counter the energy crisis. Although Germany has above-average energy-related CO2 emissions per capita, this indicator has improved much faster since 2015 compared to the EU average, implying that the carbon-industrial sector has accelerated the pace of energy transition. The strengthening of decarbonisation policies is also reflected in the share of non-CO2 sources in electricity generation which had been rising steadily until 2020, thanks to the expansion of renewables in the power system. This positive trend has been reversed since then as the added RES-based power generation capacity did not entirely replace the nuclear power capacity phased out recently. Despite a continuous decline in recent years, Germany’s fossil-fuel-based energy intensity remains a key driver of its sustainability risk profile, as households, industry and transport are still heavily dependent on fossil fuels. Electrification and the use of green hydrogen have huge potential to replace fossil fuels in these sectors, but progress has been slow so far and thus insufficient to meet Germany’s climate targets.

Italy

The main reliability risk indicator in Italy is the low electricity capacity diversity. Italy has failed to diversify its power mix since 2008 and its capacity diversity stays at 70% below the EU average. The excessive dependence on natural gas in the power sector is the main factor determining the limited capacity diversity. As Italy imports most of the natural gas it consumes, the reliability of power supply is the direct product of the predictability and diversity of gas imports, which come from a few, largely authoritarian, countries. As in the case of the Russian war in Ukraine, Italy is vulnerable to supply shocks linked to different geopolitical crises that could cripple the electricity system. Italy gets around 40% of its natural gas from Russia (29 billion cubic meters per year), which means that it would be very difficult to fully diversify away from Gazprom in the short run despite pledges by the Italian government to do so. A potential Russian cut in natural gas supply could cause disruptions on the power market or to the very least increase electricity prices to unimaginable levels. The alternative to Russia would be even greater dependence on Algeria, which already supplies circa a third of the country’s needs and several other authoritarian countries including Qatar and Azerbaijan. This is not a long-term solution, as security of supply risks will persist albeit at a lower intensity. Hence, there is a clear urgency to reduce Italy’s overall natural gas consumption and gradually phase it out from power generation by replacing it with renewables and power storage systems.

Germany

The risks to Germany’s reliability of supply have been steadily declining over the last five years and are below the EU average levels although there has been a slight uptick in 2021. According to the results of the Index, the main drivers of Germany’s reliability risk profile are its high energy intensity, empty gas storages, the still heavily oil-dependent transport sector and the low capacity diversity of the electricity sector, which is below the EU average. The latter is the result of the consistent policy direction of the German government over the past decade to phase out Germany’s nuclear power plant fleet. The missing nuclear capacity has been partly replaced by renewables but the country’s power mix is still relatively carbon intensive as coal and gas made up 41 % of power generation in 2021 and 43% over January-May 2022. Meanwhile, energy efficiency measures have not led to a steep reduction in household energy consumption per capita, and it remains significantly above the EU average at almost 700 kgoe per capita.

As of 2022, Germany’s natural gas storages have also emerged as a major vulnerability to the reliability of energy supply since their average filling levels have remained much lower than usual since the fall of 2021. By allowing that two major natural gas storages are owned by a Gazprom subsidiary, Germany has willingly given up the control over critical energy infrastructure to Russia. This has provided the Kremlin with yet another tool to undermine European energy security.

Italy

The spike in oil and gas prices has contributed strongly to the increase of affordability risks in Italy. Together with the impact of higher CO2 costs, the country’s industrial competitiveness has been deeply eroded in recent years. Italy’s slower progress, compared to other Western European countries, towards the EU’s key decarbonisation goals such as decreasing the share of fossil fuels in the transportation and electricity sectors have maintained the country’s exposure to the volatility of fossil fuel prices.

Structurally, the most important factor strengthening the link between the security of energy supply and the affordability crisis in Italy is the growing dependence of the Italian power sector on natural gas. The concurrent expansion of natural gas use in the power generation and industrial sectors made for a perfect storm when gas supply shortages in 2021 pushed global prices up. The domino effect on electricity prices, coupled with global oil market disruptions, led to a skyrocketing jump in energy poverty levels.

Germany

After a period of relatively low energy expenditures, affordability risk levels for Germany have skyrocketed in 2021, driven by the surge in fossil fuel prices and the country’s above-average CO2 costs, retail electricity prices, and energy expenditures per capita. The high CO2 costs reveal that despite the success in its energy transition, Germany remains a highly carbon intensive economy. Oil products still dominate energy demand. The share of non-petroleum fuels in the transportation sector remains below the EU average, at just 6.6% vs 7.7% for the EU. Meanwhile, the decline of power generation by nuclear plants has been partially compensated by coal-fired plants and there is a high demand for coal and gas in the industrial sector. As a result, the spike in fossil fuel prices has translated into higher overall energy expenditures. With the surge of CO2 prices, meanwhile, producers will face rising production costs if they do not find ways to decarbonise their production processes through a combination of energy efficiency and higher use of renewable energy.

German households face some of the highest retail electricity prices in the EU, which have consistently been one of the main drivers of Germany’s affordability risk profile and pose a heavy burden for low-income households, in times of very high inflation rates. Targeted support for vulnerable groups that focuses on energy efficiency and empowering consumers through renewable energy sources, especially the development of energy communities, is crucial for overcoming these affordability risks.

General

The Affordability pillar assesses the impact of energy prices and energy imports on macroeconomic stability, as well as energy poverty at the household level. Some of the indicators directly show the effect of energy prices, in particular crude oil, natural gas and electricity prices for household and business consumers. Furthermore, the Affordability sub-index takes into account national expenditures on oil and gas imports and their weight relative to national GDP. Overall energy expenditures are considered as a major risk factor. They are strongly affected not only by the price level of different energy sources, but also by the fuel mix, consumer choices, and energy efficiency. In this sense, high energy consumption and the use of more expensive fuels strongly influence affordability risks. CO2 costs are also an important affordability factor, with the recent surge of CO2 prices leading to a spike in this risk indicator for the countries with high fossil fuel-based energy intensity.

Italy

Similar to Germany, Italy faces considerable geopolitical risks to its energy and climate security – 10% higher than for the European Union as a whole in 2021. The worsening of the security of natural gas imports is the main contributing factor for this negative development. While Italian natural gas demand had been falling prior to the annexation of Crimea, this trend reversed after 2014, leading to growing dependence on Russian imports.

Italy has a wide array of options to diversify its natural gas imports, given its existing trade and infrastructure ties with other producers. In fact, Italy has access to two alternative pipeline routes, the Greenstream connection to Algeria and the Transadriatic Pipeline (TAP) link to Greece (and to Azeri gas by extension), which have spare capacity of 7.8 and 11.5 billion cubic meters, respectively. Italy also has three LNG regasification terminals that are underutilized and can potentially provide a diverse and abundant gas supply from the global market. Nevertheless, imports from Russia have grown significantly, with the share of Russian gas reaching the staggering 47% in 2021. In fact, Italy accounts for 12% of the growth of the EU’s gas imports from Russia between 2014 and 2021.

The presence of Russian private and state-owned companies in the Italian energy sector has also increased, most notably with Lukoil gradually acquiring the ISAB refinery in Sicily, as well as through ENI’s joint ventures with Rosneft and its participation in Gazprom’s Blue Stream gas pipeline project, an essential part of TurkStream – Nord Stream’s analogue in Southeast Europe.

Germany

Germany faces severe geopolitical risks when it comes to energy supply. The overall geopolitical risk index shows an increase of 36% since the annexation of Crimea in 2014, a development mainly caused by the worsening of its natural gas security. Germany has become much more vulnerable over the last two decades by increasing its gas consumption (especially in the energy and industrial sectors) and continuously deepening its reliance on Russia, neglecting true gas supply diversification options in favour of the Nord Stream I and II projects. Between 2014 and 2021, German gas demand in the energy sector increased by 30%, while the share of Russian gas in total German gas imports increased from 41% to 49%. This also contributed strongly to a higher geopolitical risk for the whole EU, as Germany accounts for 17% of the increase of the EU’s gas imports from Russia between 2014 and 2021. Deeper ties with Russia, including through relentless support for Nord Stream, all the while the Kremlin’s foreign policy grew more aggressive, became a key enabler of the war in Ukraine.

Italy

The energy and climate security risk position of Italy has moved more or less in sync with the general EU trend since 2015. Most EU countries have made significant progress in decarbonising their energy sectors in-creasing the share of renewables in power generation and boosting energy efficiency. Italy is no exception. Over the past decade, the sustainability risks have gone down by a quarter on the back of the rise in renewable energy share in final energy demand and the stronger market signal to accelerate decarbonisation coming from higher CO2 prices. Despite these significant improvements, the total energy and climate security risk index score has actually stayed flat due to the sharp increase in geopolitical and related affordability risks linked to the rise in global energy prices and the expansion of the country’s dependence on Russian natural gas imports most notably in 2021.

Italy’s growing reliance on the use of natural gas in the power sector has severely eroded its energy and climate security position across all four risk dimensions. Meanwhile, the excessive share of natural gas in electricity generation (significantly above the EU average) is a key reliability risk, leading to low capacity diversity. Hence, the risk of a potential gas supply cut from Russia risks causing a domino effect that could cripple the security of power supply. The concurrent expansion of natural gas use in the power generation and industrial sectors made for a perfect storm when gas supply shortages in 2021 pushed global prices up. The domino effect on electricity tariffs coupled with global oil market disruptions led to a severe deterioration of energy poverty levels, as well as Italy’s industrial competitiveness.

As highlighted by the Index results, Italy faces structural energy and climate security risks that can be overcome only by taking decisive steps on phasing out gas by 2035 and promote the massive uptake of renewable energy sources with clear clean power commitment in revised National Energy and Climate and National Recovery and Resilience Plans.

Germany

In light of Russia’s increasingly aggressive rhetoric towards Ukraine in recent years, Germany failed to recognise the warning signs and instead continued to follow the “Wandel durch Handel” (change through trade) doctrine under the assumption that economic interdependences would be sufficient to quell any Russian plans for military aggression. Germany has emerged as one of the most vulnerable EU countries in terms of security of supply and overall energy and climate security. Its growing dependence on imports of Russian natural gas has strongly contributed to the strong increase in geopolitical risks. Moreover, Gazprom’s ownership of key gas storage infrastructure has led to higher reliability risks before and after the start of the war in Ukraine.

Fossil fuel prices continue to be the leading factor for national energy expenditures, even though the renewable energy uptake has helped reduce this interdependence. As a result, the spike in fossil fuel prices in 2021 have contributed to a sharp increase of the affordability risks. Moreover, a return to higher coal and gas power generation due to the closing of nuclear power plants has reversed some of the improvements in its sustainability risk indicators, contributing to a rebound of energy-related emissions. This and the surge of CO2 prices have also contributed to a spike in CO2 costs. A comprehensive long-term energy and climate security strategy requires an accelerated fossil fuel phase out and a greater focus on energy efficiency and renewable energy to achieve lower sustainability risk and decouple the economy from the inherent volatility of fossil fuel prices and the associated affordability risks.

General

The geopolitical risk sub-index has increased for all EU Member States as global fossil fuel production and reserves are getting increasingly concentrated in the hands of a few authoritarian states. On top of that, the security of oil and natural gas imports, which are specific for each country, has worsened noticeably for Italy and Germany, as well as for the whole EU. The growing reliance on Russian natural gas has been a key geopolitical risk factor, leading to lower diversity of supply and the concentration of gas imports in a few authoritarian states. In fact, the EU’s imports of Russian gas have increased by 46% between 2014 and 2021, with Italy contributing 18% of this increase and Germany – 17%. Many governments in Southeast Europe, including Bulgaria, Hungary, Greece, Romania, and Slovenia, are actually doubling down on gas infrastructure investments. These projects come on top of the already-built TurkStream gas pipeline, Nord Stream’s smaller but equally detrimental-to-energy-security twin in the Black Sea. Such a wasteful gas gamble will actually increase the dependence on Russia by between 30% and 50%, stalling efforts to diversify supply and complete the European gas markets integration.

The Turk and Nordstream projects have been instrumental in facilitating the Russian economic and political influence in Europe and demonstrate a number of severe governance deficiencies, including the lack of a detailed cost-benefit assessment of the projects, or consistency with long-term European energy policy and national security objectives.

Greece

Despite the integration of large volumes of renewable energy sources and the closing of coal-fired power plants, key sustainability risks remain higher than in Bulgaria and Romania. In particular, the share of non-CO2 electricity capacity remains significantly below that for Romania and Bulgaria. The energy consumption per capita in the transport sector has increased and also stands noticeably above the values in Romania and Bulgaria. Meanwhile, small gains in energy efficiency (especially in the household segment) and the massive uptake of natural gas in power generation are also key sources of vulnerability at the national level. Energy affordability risks, however, have decreased significantly. The fall of energy expenditures per capita has been a key driver behind the overall affordability risk decline. Nevertheless, compared to Romania and Bulgaria, energy expenditures in Greece remain noticeably higher.

General

The overall Index score reveals that the energy policy trilemma of achieving affordability, reliability of supply and environmental sustainability, is far from solved. Geopolitical and affordability risks have worsened for the EU and most of its Member States, while affordability and reliability risks have seen a steady, but overall small, improvement. Moreover, the geopolitical and economic crisis is threatening to slow the low-carbon transition with a pivot towards higher coal use.

The growing dependence on Russian fossil fuel exports (with Italy and Germany leading the overall EU trend in this respect) has also contributed to the entrenching of powerful state capture networks that control strategic policy. Europe needs to counter Russia’s malign economic and political influence by immediately cutting imports of Russian fossil fuels and implementing emergency measures to ensure security of supply and to protect vulnerable consumers. Furthermore, policymakers need to recognise that such emergency measures have been made necessary by the failure of national governments and the EU as a whole to design and implement a coherent long-term energy and climate security strategy.

Methodology

The current geopolitical crisis has clearly demonstrated that Europe needs to put energy security at the top of its policy priorities and make sure that it stays there even after the peak of the crisis subsides. Clearly establishing energy security as a core element of the EU’s energy strategy and synchronising energy security priorities with decarbonisation and market integration and liberalisation policies is a crucial first step with implications for the medium-term and long-term policy objectives. It is essential to take this step as soon as possible to ensure the long-term consistency of measures and investments.
The process of achieving common European goals has been hindered by a policy ambition gap due to widespread energy sector governance deficits in a number of member-states. Evidence-based policy instruments to monitor member-states’ progress such as an Energy and Climate Security Risk Index (ECSRI), allowing for an objective, comparative assessment, could become an EU-wide instrument for policy convergence. By using the Index, the EU would be able to further and deepen coordination of national policies across sectors and policy areas on the back of a long-term political, financial and social commitment.

The ECSRI has four pillars, reflecting the four dimensions of energy security risks: geopolitical, affordability, reliability, and sustainability. The Index covers 39 individual risk indicators, based on thousands of data points. While these individual factors are distributed between the four pillars, they remain closely interlinked. For instance, global crude prices are reflected in the geopolitical dimension via the assessment of their volatility, as well as in the affordability dimension, as they are also included in the analysis of the level of energy expenditures. Similarly, oil and gas consumption has an impact not only on energy expenditures, but also on the overall energy intensity of the economy, as well as GHG emissions.

The Index allows policy-makers and experts alike to fully reflect on a wide spectrum of risks associated with the high reliance on fossil fuels, as well as the risk mitigation potential of decarbonisation policies. In addition, the reliability dimension captures the risks associated with the structure of the energy system and its ability to absorb potential shocks. This is measured through indicators such as energy efficiency of different economic sectors, the resilience of the electricity system (transmission losses, density of the electricity grid, etc.), and petroleum/natural gas stock levels.

The ESCRI can improve the understanding and transparency of the most important energy security and climate vulnerabilities faced by EU member-states based on data-driven policy action. It would help track the progress of European countries towards the diversification of supply sources, the liberalization of energy markets, the decarbonization of key economic sectors, as well as the improvement of energy affordability and energy system reliability. It will also monitor the impact of climate policies on key environmental and sustainability indicators.

A critical element of this instrument is a common assessment of the risks related to natural gas, oil and electricity imports based on (i) overall reliance on imports, (ii) diversification of the import sources, and (iii) the reliance on authoritarian states for imports. Such an assessment for the EU and several key Member States clearly reveals the strong increase of security risks since 2014. It also demonstrates the historically much higher risk exposure of Southeast Europe compared to the EU-level risk. From this perspective, reduction of natural gas demand, avoiding a natural gas lock-in, a phase out of coal in combination with massive renewable energy-based transition and a smarter, more resilient and integrated electricity system would be key policy actions to make the European energy system much more resilient. This would result in an overall reduction in energy security risks.

The ECSRI will rely mainly on Eurostat data, with additional metrics that are not available there coming from the US Energy Information Administration (EIA), the Pathways explorer developed by CLIMACT, and national statistical authorities. For the global factors in the Geopolitics pillar, which are the same for all countries, the ECSRI for Germany and Italy will use the indicators from the Index of U.S. Energy Security Risks developed by the The Global Energy Institute (GEI). In cases when the preferred data for a particular indicator is not publicly available and cannot be measured directly, proxy estimates will be developed.

The individual risk metrics are measured in different units, such as EUR per barrel for crude prices or toe per EUR 1000 GDP for the fossil energy intensity of the economy. To transform them into comparable indicators that use a common unit and can be assembled into an index, each risk metric is normalised by setting the value for the EU-27 in 2015 as 100. For each indicator, all values are measured in proportion to the base value for the EU-27 in 2015. Hence, the index reflects the relative risk compared to the average for the EU-27 and the change of the metric’s value over time. Hence, it measures the trend of the level of risk over time, as well as the relative risk level vs the EU-27.

The time period covered by the ECSRI is 2008-2021, reflecting key data availability in Eurostat. The choice of the base year, 2015, is intended to reflect the immediate aftermath of the Crimea crisis, as it is a key potential turning point and a missed opportunity for improving Europe’s energy security. It follows the collapse of global crude prices in 2014 and at the same the rise of a more aggressive Russia in the foreign policy domain. From this perspective, 2015 is when relatively low global crude oil and natural gas prices created favorable conditions for a ramp up of supply diversification efforts, while at the same time geopolitical signals should have incentivized European countries to make a U-turn on their foreign policy towards Russia. The use of 2015 as a base year will serve to highlight the strategic failures in Italy and Germany’s energy and climate security policies linked to Russia.