Market distortions and carbon leakage

To meet its objectives, the EU implemented an Energy Trade System (ETS), which consists of a carbon tax that increases the costs of carbon-intensive goods for domestic producers, thus generating competitive advantages to low-carbon products in terms of consumer preferences. However, this measure also generated competitive advantage for foreign producers of carbon-intensive goods, thus generating “carbon leakage” problems. In other words, the outsourcing of GHG emissions as a result of climate policies counteracting its effect and failing to reduce total emissions. To fix this, the Green Deal proposed a carbon border adjustment (CBA), which would correct the market distortion “by imposing an import duty equal to the carbon price differential times the carbon content of the imported good and thereby ensure that all goods sold on the domestic market face the same carbon price” (Mörsdorf, 2022, p. 2). This would promote the adoption of low-carbon energies and production with lower energy intensity (Brenton & Chemutai, 2021).

However, critics have pointed to several limitations of putting this policy in practice, including issues related to monitoring and taxing such a huge amount of goods in big complex trade networks, with the costs of standardization, the use of the instrument for protectionist purposes, and the legal problems of complying with World Trade Organization (WTO) norms or facing legal disputes stemming from an unclear legislative framework, further increasing geopolitical tensions (Mörsdorf, 2022). Overall, it seems difficult to “keep prices on the fossil fuel markets high and stop this leakage from happening” (p. 6).

Winners and Losers

The idea of Europe being 100% fueled by self-generated renewable energy is utopian to say the least. First, renewable energy sources are characterized for their intermittency, which can translate into volatile prices and unreliable availability of energy, weakening the resilience of the energy system and making it vulnerable to external shocks. Moreover, this renders nuclear and natural gas as strong back-up technologies to guarantee the system’s resilience, in terms of storage capacity, energy losses from distribution, and stability.

Secondly, the implementation of renewable energy implies assuming regional and national costs in terms of investments in new infrastructure, technology and research for clean energy development, which not all countries can afford equally (Peña-Ramos et al., 2021). Thus, many governments will be unwilling to prioritize renewables when facing widespread energy shortages, fossil fuel export dependency - as in the case of Algeria or Saudi Arabia –, and international clashes of interests (Overland and Westphal, 2019). In other words, the transition will generate winners and losers, having an uneven impact on European energy trading partners from different world regions (Figure 2). Particularly, partners in the Middle East and North Africa, and from Europe and Central Asia, will be the most affected regions.

Figure 2: Impacts of the European Green Deal.

Transnational connections and green colonialism

Like fossil fuel trade, the energy transition requires cross-regional channels to supply Europe with renewable energy power and raw materials. However, as the new regime expands, the European renewable energy market along with the governance structures that sustain it have the risk of reproducing old geopolitics from the fossil fuel regime, including extractivist and colonial dynamics in the transition process (Claar, 2022). Such relationships can be subscribed to the notion of energy colonialism, within the concept of “green colonialism” (Claar, 2022).

Arguably, the European Green Deal perpetrates power structures in its energy transition plan, in which market liberalization, resource extraction and land expropriation are major drivers of neocolonial pressures. For instance, there is the issue of raw materials needed in the development of RE infrastructure, including rare earths, used for magnets in wind energy; lithium for batteries; silver and tellurium for photovoltaic, and other materials which involve the depletion of limited resources. The shift from the extraction of fossil fuels to RE industry materials can create new conflicts over limited resources, implying new political tensions and environmental impacts (Peña-Ramos et al., 2021).

This is a potential case for Europe-Africa RE projects. Even though Europe focuses on wind and hydro power in the North Sea for RE generation, the Union also looks at North African countries as potential suppliers of renewable energy, an alliance that could contribute to decarbonizing Europe and provide more stability in the energy network. Solar energy from the South Mediterranean and Sahara regions have special potential due to their climatic conditions.

However, the idea of decarbonizing Europe using the resources of African countries experiencing energy insecurity is essentially extractive. Some of the technologies in North Africa and Middle Eastern countries to store energy during non-solar hours use solar thermal power plants, which require huge amounts of water, in regions where water stress worsened by climate change is a primary security concern (Stumm, 2020). In this sense, it would be rational to allocate the energy generation potential of African countries for the development of national and regional economies, instead of exporting it to Europe. For instance, it would not make sense that Morocco became a green exporter of renewable hydrogen when it imports 90 percent of its energy demands and RE production capacity is at 37%, below the Paris Agreement target (International Trade Administration, 2022). In the case of Morocco, the EU did not approve exporting claims due to the enormous investment, infrastructure and know-how transfer it would require, raising questions about reasons based on “fears of dependency or conscious geostrategic interdependencies” (Wondratschek, 2022, p. 270).

Figure 3. European offshore supergrid (a). The Desertec concept (b). (Benasla et al., 2019)